The Department of Industrial Policy & Promotion (DIPP), functioning under the Ministry of Commerce and Industry, has refused to give tax benefits to 401 start-up companies, as they have failed to qualify during the scrutiny process.

The DIPP received as many as 407 applications from start-up companies for availing tax benefits under the Start-up India scheme during the third and fourth financial quarters, out of which only four start-ups could manage to qualify the test. The applications of two start-ups are still pending before the review panel. These start-up applications for availing tax benefits were filed by the companies formed after 1 April 2016.

In order to achieve the target for creation of jobs, soon after assuming power in 2014, Prime Minister Narendra Modi had launched the Start-up India scheme. Under the scheme, the Prime Minister had made provisions to give a bunch of benefits, including a three-year tax holiday in a block of seven years.

Other relaxations relate to allowing start-ups to raise deposits from members (shareholders), with exemption from procedural compliance for five years. Also, start-ups would not be required to prepare cash flow statements. Relaxation has also been provided on the board meetings front. A company secretary of a start-up or a director can now sign the annual return.

According to sources, applications for availing tax benefits under the Start-up India scheme were rejected by the DIPP in an inter-ministerial board meeting held in December last year.

Interestingly, the DIPP, responsible for formulation and implementation of promotional and developmental measures for growth of the industrial sector, refused to give tax benefits to these start-ups, but granted start-up status to 369 companies.

Last year, till the second quarter, the DIPP had received 1,425 start-up applications, but only 111 applications were considered for tax benefits and eight start-ups were approved for availing tax benefits.

A senior official of the DIPP told The Sunday Guardian: “The scrutiny process has several layers and for qualifying the eligibility norms, start-ups need to follow all the layers.”

“Apart from strict scrutiny, cases of fraud tax benefit claims by start-up companies have become the reason for increased rejection of applications. An inter-ministerial meeting held in November last year found many cases of fraud tax benefit claims. Many companies, including Indian and foreign ones, had registered their new subsidiary as a start-up company,” the same official cited above said.

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