A Start-up comes into existence when a founder comes up with a great idea accompanied by an execution plan that can potentially change the way an Industry works and/ or gives a solution to a specific consumer need.
In a view to support such ideas for creating a better future, developing an effective Start-up ecosystem, and catalyzing the creation of employment opportunities through them in the country, The Government of India has launched a Startup India Initiative as their flagship scheme to promote innovative ideas and incentivize the entrepreneurs for setting up their ventures.
These programs are managed by a dedicated Startup India Team, which reports to the Department for Industrial Policy and Promotion (DPIIT)
Do you have a Startup?
Then you must meet the following criteria to be considered eligible for DPIIT Startup recognition to avail of the benefits declared by the Central/ State government(s) from time to time:
- Company Age: Period of existence and operations should not be exceeding 10 years from the Date of Incorporation.
- Company Type: Incorporated as a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership
- Annual Turnover: Should have an annual turnover not exceeding Rs. 100 crores for any of the financial years since its Incorporation
- Original Entity: Entity should not have been formed by splitting up or reconstructing an already existing business.
- Innovative & Scalable: Should work towards development or improvement of a product, process, or service and/or have a scalable business model with high potential for the creation of wealth & employment.
Why should a Startup get registered with DPIIT?
DPIIT recognized Startups can get the following benefits under the Startup India Initiative
Self-Certification for Labour and Environment law compliances
- Startups shall be allowed to be self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure; This saves a lot of time and money for the budding entities and improves the ease of doing business.
- In the case of labour laws, no inspections will be conducted for a period of 5 years. Startups may be inspected only on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.
- In the case of environment laws, Startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB) would be able to self-certify compliance and only random checks would be carried out in such cases.
A swift, cost-friendly and a subsidised framework to apply for Patents, Trademarks, Designs
- Fast-tracking of Startup Patent Applications: Patent applications filed by Startups shall be fast-tracked for the examination so that their value can be realized sooner.
- For effective implementation of the scheme, a panel of “facilitators” shall be impaneled by the Controller General of Patents, Designs, and Trademarks (CGPDTM), who shall also regulate their conduct and functions. Facilitators will be responsible for providing general advisory on different intellectually property as well as information on protecting and promoting intellectual property in other countries.
- Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks, or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.
- Startups shall be provided an 80% rebate in filing patents vis-a-vis other companies. This will help them pare costs in the crucial formative years.
Exemption from Income Tax
- Eligible Startups can be exempted from paying Income tax for 3 consecutive financial years out of their first ten years since incorporation.
- Only Private Limited Companies or Limited Liability Partnerships are eligible for tax exemption under Section 80IAC
- The Startup should have been incorporated after 1st April, 2016
Exemption from Capital Gains Tax on Share Premium (Angel Investment Tax)
- Investments into eligible Startups by listed companies with a net worth of more than INR 100 Crore or turnover more than INR 250 Crore shall be exempt under Section 56 (2) VIIB of Income Tax Act.
- Investments into eligible Startups by Accredited Investors, Non-Residents, AIFs (Category I), & listed companies with a net worth more than 100 crores or turnover more than INR 250 Crore, shall be exempt under Section 56(2)(VIIB) of Income Tax Act
- Consideration of shares received by eligible Startups shall be exempt up to an aggregate limit of INR 25 Crores.
- To avail the above, the registered Startup should be a private limited company and such Startup should not be investing in immovable property, transport vehicles above INR 10 Lakh, Loans and advances, capital contribution to other entities, except in the ordinary course of business.
Exemption from Prior Experience/Turnover & EMD required for Government E-Marketplace and specified tenders
- DPIIT Recognized Startups can register themselves on GeM as sellers and market their products directly to Government entities. This is a great opportunity for the Startups to work on trial orders with the Government.
- DPIIT recognised Startups have been exempted from submitting Earnest Money Deposit (EMD) or bid security while filling government tenders.
Easy winding up of the company in case of closure of business
- As per the Insolvency and Bankruptcy Code, 2016, Startups with simple debt structures, or those meeting certain income specified criteria can be wound up within 90 days of filing an application for insolvency.
- An insolvency professional shall be appointed for the Startup, who shall thereafter be in charge of the company (the promoters and management shall no longer run the company) including liquidation of its assets and paying its creditors within six months of such appointment.
- Upon appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBC. This process will respect the concept of limited liability.