Key Changes in New ITR Forms Applicable for Start-ups

Changes in New ITR Forms Applicable for Start-ups

Generally the start-ups are incorporated as a company in which case ITR 6 will be filed however, the start-ups can also get incorporated as a partnership firm or LLP, then return shall be filled in ITR 5. Read to know the key Changes in New ITR Forms Applicable for Start-ups.

Up till now no major disclosures were required to be made by the start-ups, however, new ITR forms requires them to fill some specific information in respect to their shareholding, assets and liabilities during and at the end of the year and their registration details as well.

The disclosures are made to keep check on the compliances made by the start-ups to claim exemption from the angel tax and other benefits as allowable in their cases.

Three major disclosures are now to be made by the start-ups which are discussed as follows: –

1.Reporting of registration number and other information by Start-ups

With a view to provide an impetus to start-ups and facilitate their growth in the initial phase of their business, Section 80-IAC was inserted in Income-tax Act with effect from Assessment Year 2017-18 to provide a deduction of up to 100% of profits and gains derived by an eligible start-up.

Deduction under section 80-IAC is allowed to an eligible start-up if it has been approved by the DPIIT. No information about the registration with the DPIIT was required to be mentioned in the previous year’s ITR forms. However, to track eligibility of a start-up, following information is now being asked for in new ITR forms:

a) Registration no. allotted by DPIIT

b) Number of the certificate received from Inter-Ministerial Board

c) Date of filing of form 2 with DPIIT

                Speaker: CA Shivi Agarwal

2.Reporting of shareholding by start-ups and closely held companies

If a closely held company issues shares at a price which is higher than its face value and fair market value (FMV), the difference between the FMV and issue price is charged to tax in the hands of the company under the head income from other sources. In common parlance, such tax is called ‘Angel tax’.

Start-ups are exempted from levy of angel tax, subject to certain conditions. So, to keep a check on the issuance of shares by start-ups, the new ITR forms have introduced a new schedule “Schedule SH 2”wherein start-ups are required to provide the following information on the shareholders and the share applicant (in case allotment is pending):

a) Name of shareholder

b) Category of shareholder

c) Type of share

d) PAN of shareholder

e) Date of allotment/Date of application of shares

f) Number of shares held/No. of shares applied for by the shareholder

g) Face value per share

h) Issue price per share

i) Paid-up value per share

j) Share application money in case allotment is pending

k) Share premium

Further, in case a person, who was a shareholder at any time during the previous year, but ceased to be a shareholder at the end of the previous year, following additional informations are required to be furnished:

a) Date on which he ceased to be shareholder

b) Mode of cessation

c) PAN of new shareholder in case of transfer

3.Reporting of assets and liabilities by start-ups and unlisted companies

Start-ups are allowed exemption from angel tax subject to certain conditions. One of such conditions is that they don’t invest in any of the following assets:

a) Land or building, being a residential house, other than that used for the purposes of renting

b) Land or building, not being a residential house, other than that occupied by start-up for its business or renting

c) Loans and advances, if start-up isn’t engaged in ordinary business of lending of money

d) Capital contributions made to any other entity

e) Shares and securities

f) Motor vehicle, aircraft, yacht or any other mode of transport, if the cost of such an asset exceeds Rs. 10 lakhs

g )Jewellery

h) Archaeological collections, drawings, paintings, sculptures, any work of art or bullion

The period of restriction in making investment in the above mentioned assets is 7 years from the end of the financial year in which shares are issued at premium. However, the above conditions are not applicable in case start-up holds the above assets as stock-in-trade in its ordinary course of business.

To ensure that start-ups are complying with the aforesaid conditions, new schedule AL 2 has been inserted in new ITR forms wherein various details about the assets and liabilities are required to be furnished, such as date and cost of acquisition of asset, purpose for which asset is used, PAN of the person from or to whom loan or advance is given or accepted, vehicle registration number, etc. Similar schedule AL 1 has been inserted for unlisted companies as well.

These are the major disclosure requirements with respect to the start-ups, an additional requirement is also provided in case where assessee holds shares in any unlisted company.

Where a company issues shares at a price which is less than its FMV and the difference between the FMV and issue price exceeds Rs. 50,000 then the difference is charged to tax in the hands of the shareholders under the head income from other sources.

In order to keep check on issue of shares by a closely held companies and investment made therein by shareholders, a new table has been inserted in new ITR forms to seek the following details in respect of unlisted equity shares held at any time during the previous year by an assessee:

a) Name of the company

b) PAN of the company

c) No. and cost of acquisition of shares held at the beginning of the year

d) No. of shares, face value, issue price (or purchase price) and date of purchase of shares acquired during the year

e) No. and sale consideration of shares transferred during the year

f) No. and cost of acquisition of shares held at the end of the previous year.

The govt. has tried to capture all the relevant information from the start-ups, unlisted companies and their investors so as to keep a check on the shares being issued and their respective issue price.