An emerging entrepreneur with a business turnover of less than Rs25 crore can avail of tax breaks and other benefits for a five-year period as per the government's new definition of start-ups.
Also, entities formed by splitting or re-construction of existing businesses will not be considered as start-ups.
The government is expected to announce adequate tax benefits for start-ups in the forthcoming budget.
The Department of Industrial Policy and Promotion (DIPP) said it has come out with a new definition of start-ups in order to have ''uniformity'' and to ensure that only genuine startups get the benefits.
''In order to obtain tax benefits, a start-up so identified under the above definition shall be required to obtain a certificate of an eligible business from the inter-ministerial board of certification,'' DIPP said in a notification.
The board will have the joint secretary, DIPP, representatives of the Department of Science and Technology and Department of Biotechnology as its members.
''To bring uniformity in the identified enterprises, an entity shall be considered as a 'start-up up to five years from the date of its registration; if its turnover for any of the financial years has not exceeded Rs25 crore…. it is working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property,'' DIPP said.
The process of recognition as a 'start-up' would be through mobile app / portal of the DIPP. Start-ups will also be required to submit a simple application with certain documents, including a letter of funding of not less than 20 per cent in equity by any incubation fund/angel fund/private equity fund/ duly registered with Sebi that endorses innovative nature of the business.
Start-ups may be provided incentives such as exemption in deemed tax on capital investments, exemption from paying service tax/VAT, etc.
Besides taxing only realised gains, start-ups will be provided a mechanism to defer tax on ESOPS and share swaps.
Prime Minister Narendra Modi on 26 January unveiled a slew of incentives to boost start-up businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs10,000 crore corpus to fund them.