Startups have undoubtedly become the driving force of the Indian Economy.
Currently,around 18,000* companies are recognized as startups by DPI.In a country that is driven by its youth, the number of startups is bound to reach the mark of 1,00,000 by 2025 and to play its part Government of India launched the Startup India initiative. This initiative was introduced in the year 2016 to support the growing number of startups in India.
Registering as a “Startup” with DPIIT involves many benefits under Income Tax Act, including tax exemptions by the Income Tax Department,ease in funding and financial benefits provided by the government and at times even in the eyes of investors at the time of fund raising.
So firstly let’s understand who can be recognized as a ‘Startup’. The Department of Promotion of Industry & Internal Trade (DPIIT) defines startup as a term which can be used for any:
- legal entity – operating as a Private Limited, Limited Liability Partnership (LLP) or a Partnership firm
- That have not completed a period of seven years from its date of registration.
- Have an annual turnover not exceeding INR 25 cr
- Is working towards innovation, development or improvement of products and services or if it is a scalable business model with a high potential of employment generation or wealth creation.
It is important to note that to qualify as startups the companies have to prove they are different from any of the existing products & services and provide incremental mere act of developing it would not suffice
There are a lot of benefits for startups getting recognition under the Startup India program:
1. Financial benefits
Under financial benefits, whenever a startup applies for a patent, the government will provide 80% rebate on patent costs and 50% rebate in filing a trademark in case of private limited, LLP and Partnership companies. The government will also pay the fees of the facilitator and help startups obtain their patent. This way the patent registration and protection of Intellectual Property Rights (IPR) will become much easier.
2. Registration benefits
The government of India launched a mobile app on 1st April 2016 which allows companies to register in a day. In addition to that, a single point of contact for queries has also been set up to tackle problems in real time. A single window clearance for all clearances, approvals, and registrations, has been set up to make the process hassle-free.
3. Income Tax benefits
Startups are exempted from paying Income Tax for the first three years from the date of registration. A startup however needs to obtain a certificate from the Inter- Ministerial Board.It can also avail tax benefits on capital gains and relaxation in case of adhering to the valuation norms.
4. Other special benefits:
- Self-certification under section 9 of environmental and labour laws.
- Closure and winding up of company within 90 days under insolvency and bankruptcy code 2016.
- Fund of INR 10,000 crore through Alternative Investment Funds and INR 2,000 crore guarantee funds from National Credit Guarantee Trust Company/Small Industries Development Bank of India (SIDBI) over 4 years.
- No inspection will be conducted for the first three years regarding labor laws.
- Environment law compliance would be required only post self-certification.
- Occasional special consideration from investors.
Further, In the circular dated May 22, SEBI has now provided framework for accreditation of investors. This includes eligibility criteria and procedures to be recognized as an accredited investor and also mentioned the validity of accreditation.
*18711 DPIIT recognized startups as mentioned on www.startupindia.gov.in as on 26th May,2019.
