Startup India was launched in January, 2016 as a clarion call to the innovators, entrepreneurs and thinkers of the nation to lead from front in driving India sustainable economic growth and create large scale employment opportunities. Startup India laid the foundation for building a self reliant India and harness the potential of a nation bestowed with the largest huge population in the world.
The Startup India drive was initiated with the following objectives at a broader level:
- To support creative and innovative idea through incubation and research and development;
- To transform such ideas into valuable products, processes or solutions;
- To improve productivity and efficiency;
- To create an environment of absorption of innovation in Industry;
- To promote ease of access to capital for Startup and to mobilise global capital for industry;
- To provide access to global market for Indian products.
Entities eligible for Startup Recognition
Pursuant to the G.S.R. 127(E) an entity shall be eligible to be recognised as a Startup:
- Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company or registered as a partnership firm or a limited liability partnership in India.
- Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.
- Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.
Benefits of Startup Recognition
Tax Exemption under section 80-IAC of the Income Tax Act, 1961:
A Startup which fulfils the following conditions can avail exemption of profits and gains for 3 consecutive years out of 10 years from incorporation:
- Conditions as specified in section 80-IAC (i) and (ii) of the Income Tax Act, 1961;
- Incorporated on or after 1st April, 2016 but before 1st April, 2022;
- The total turnover of its business does not exceed INR 100 crore in the previous year; and
- It holds the certificate of eligible business from the Inter-Ministerial Board of Certification.
Exemption under section 56(2) (vii b) of the Income Tax Act, 1961:
A Startup shall be eligible for exemption of tax on any investments received above fair market value under section 56(2) (viib) of the Income Tax Act, if it fulfils the following conditions:
- It has been recognised by DPIIT under para 2(iii)(a) of notification no. GSR 127 (E) dated 19th February, 2019;
- The aggregate amount of paid up share capital and share premium of the startup after issue or proposed issue of share, if any, does not exceed, twenty five crore rupees.
- The entity has not invested in any of the assets as specified in the above mentioned notification.
Startups shall be allowed to self-certify through the Startup mobile app with 9 labour and environment laws for the period of 3 years from the date of incorporation. In case of the labour laws, no inspections will be conducted for a period of 3 years. In case of environment laws, Startups which fall under the ‘white category’ would be able to self-certify compliance and only random checks would be carried out in such cases. For self-certify compliance a Startup has to register at Shram Suvidha portal.
The Labour law and Environmental Laws are as follows.
|1.The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996.
|1. The Water (Prevention & Control of Pollution) Act, 1974.
|2.The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979.
|3.The Payment of Gratuity Act, 1972.
|2. The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
|4.The Contract Labour (Regulation and Abolition) Act, 1970.
|5.The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
|3. The Air (Prevention & Control of Pollution) Act, 1981
|6.The Employees’ State Insurance Act, 1948.
Patent Application and IPR Protection:
Startups are eligible for 80% rebate in patent filing fees and 50% rebate in trademark filing fees. Additionally, Startups are also considered for expedited examination of patent applications to reduce time taken in granting patents.
Easier Public Procurement Norms:
Government of India has authorised its ministries, departments and public sector undertakings to relax norms in all public procurement. Startups are entitled to avail exemption on Prior Turnover, Prior Experience and Earnest Money Deposit. DPIIT recognised startups can get listed as sellers on the Government of India’s largest e-procurement portal named Government e-Marketplace. Recognised Startups can also become preferred bidders on CPPP portals.
Ministry of Corporate Affairs has notified Startups as ‘fast track firms’ enabling them to wind up operations within 90 days vis-a-vis 180 days for other companies. Startups with simple debt structures or those meeting such criteria as may be specified may be wound up within a period of 90 days from making of an application for winding up on a fast track basis.
Support in Funding:
Easy availability of capital is essential for entrepreneurs at the early stages of growth of an enterprise.
It is essential to provide seed funding to startups with an innovative idea to conduct proof of concept trials. Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has initiated Startup India Seed Fund Scheme (SISFS). Startup India Seed Fund Scheme (SISFS) aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization.
This enables the startups to reach to a level where they will be able to raise investments from angel investors or venture capitalists or seek loans from commercial banks or financial institutions. The Seed Fund gets disbursed to eligible startups through eligible incubators across India.
The process of recognition of an eligible entity as startup shall be as under: —
- The process starts with registration on the website – https://www.startupindia.gov.in or over the mobile app set up by the DPIIT with details which are Entity Name, Email ID and mobile number. It is preferred to give permanent email id and mobile number as the process to change the email id or mobile is tedious and time consuming.
- A detailed profile of the Company shall be created on the above mentioned website as a “Startup” giving details about innovation, scalability and potential of employment generation or wealth creation. Further it shall explain how does start up propose to solve the problem, what is the uniqueness of the solution, how does start up generate revenue and the product details and the team.
- The DPIIT may, after calling for such documents or information and making such enquires, as it may deem fit, by an email –
(a) recognise the eligible entity as Startup; or
(b) reject the application by providing reasons.
In case of rejection entity has to check the reasons and accordingly submit the information / documents online.
- Startup has option of connecting with mentor for help in registration purpose. A startup is allowed to send 3 connection requests each week. Your mentor would help you with your queries / issues in respect of registration as startup.
- For the purpose of availing exemption under section 80-IAC of the Income Tax Act, 1961, an entity shall make an make an application in Form-1 along with documents specified therein to the CBDT and the Board may, after calling for such documents or information and making such enquires, as it may deem fit grant the certificate.
- For the purpose of availing exemption under section 56(2) (viib) of the Income Tax Act, 1961, an entity shall file duly signed declaration in Form 2 to DIPP. On receipt of such declaration, the DPIIT shall forward the same to the CBDT and the entity would receive communication from the CBDT in respect of the same.
The Indian startups have been rising mainly due to increasing aspirations of educated youth. Government initiatives like ‘Make in India’ and ‘Startup India’ are aimed at creating a conducive ecosystem for business growth and are working towards promoting ease of doing business in the country.
Author: Prashant Jain, Co-Founder & Partner, Prajakta V Ghokale, Associate and Nisha Jhawar, Associate.
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