MCA amends incorporation fee and shifting of office norms for startups

To encourage startups and improve ease of doing business in India, the Ministry of Corporate Affairs (MCA) has exempted incorporation fee for firms having share capital up to Rs 15 lakh.

Earlier, the companies with initial authorised capital up to Rs 10 lakh were exempted from any MCA fee on Incorporation and only stamp duty was applicable. The notification will be in effect from March 18, 2019.

It also made amendments related to shifting of registered office from one state to another state. Any companies, who want to shift their Registered office from one state to another state can advertise the notice of shifting registered office in a vernacular newspaper in the principal vernacular language in the district and in the English language in an English newspaper with the wide circulation.

Prior to amendment, the startups had to publish notice of shifting in widest circulated newspaper, which in case of failure used to result in the unnecessary delay of 4-5 months in the completion of the procedure.

Now with the amendments, the companies can choose the newspapers with minimum circulation as well. The amendments are made with an aim to enhance the ease of doing business for startups and SMEs.

However, according to analysts, the amendment has not specified a meaning to the term 'wide', leaving the same to the judgement of authorities. This might lead to confusion and undue delays in the processing of applications.

The amendment to the Companies (Incorporation) Rules, 2014 to this effect was notified in the first week of this month.

Besides, in the last few days, the govt seems to have shown interest in resolving startups Tax issues, that they complained to have been battling with past few years. Two days ago, the government has sent formal mail confirming the exemption of Angel Tax for startups, who have applied for exemptions.

Recently, Income Tax department in notification has said that about 120 startups, out of 150 applied for tax relief, have got the exemption from Section 56 (2) viib of the Income-Tax Act, 1961. The rest of the startups are also expected to get relief soon once flaws in their applications are corrected.

This will help startups, who received tax notices for share premium that is higher than their fair value, counter IT department notices.

In February, DPIIT had issued notification, which said that consideration received by the eligible startup for shares issued or proposed to be issued will be exempt up to an aggregate limit of Rs 25 crore. Startups were asked to file a duly signed declaration with DPIIT for availing the exemption.