The government has introduced various tax exemptions and funding facilities for the recognised startups to boost the ecosystem under Startup India initiative, Union minister Piyush Goyal said in a written reply to Lok Sabha.

The minister said that the government had formed an inter-ministerial board of certification under the aegis of Department for Promotion of Industry and Internal Trade (DPIIT) which validates tax-related benefits for startups. A DPIIT-recognised startup is eligible to apply to the board for full tax deduction on profits and gains from businesses under Section 80IAC of the Income Tax Act, he said.

"DPIIT-recognised startups are also exempt from tax when it receives fund from issue of shares which exceed the fair market value under Section 56(2)(viib) of the Income Tax Act," he said.

Startups need to file a duly signed declaration in Form 2 to DPIIT to claim the exemption. New ventures can also get exemption from tax on long-term capital gain under Section 54EE of Income Tax Act, 1961, if such gain is invested in a fund notified by central government. A firm can invest maximum of Rs 50 lakh under this rule.

There is also exemption from tax on capital gains arising out of sale of residential house or a residential plot of land if the amount of net consideration is invested in prescribed stake of equity shares of eligible startup.

The government has also relaxed the condition of 50 percent minimum holding of share capital or voting rights in the startup to 25 percent, the minister told the House. The period of extension of capital gains arising from sale of residential property for investment in startups has also been extended up to March 31, 2021.

Startups can carry forward their losses on satisfying conditions set by DPIIT.

Besides these tax benefits, the government has also created a corpus to facilitate funding for DPIIT-recognised startups. In June 2016, fund of funds (FFS) for startups with a corpus of Rs 10,000 crore was created to give much-needed boost to the startup ecosystem and enable access to domestic capital, the minister said.

FFS does not directly invest in startups, but provides capital to SEBI-registered alternate investment funds (AIFs), known as daughter funds, who in turn invest money in growing startups through equity and equity-linked instruments.

SIDBI has been given the mandate of managing this through selection of suitable daughter funds and overseeing the disbursal of committed capital.

“Rs 695.94 crore has been drawn from the fund of funds for startups and Rs 2,669.83 crore has been invested into 279 startups. There is no provision for state/UT-wise distribution of funds under FFS,” the minister explained.

Goyal said that SIDBI has committed Rs 3123.20 crore to 47 SEBI-registered AIFs and these funds have raised a corpus fund of Rs 25,728 crore.

First Published:Dec 11, 2019 6:37 PM IST