Startup India Scheme is a flagship program by the Government of India, launched in 2016. The Government through this initiative aims to empower Startups to grow through innovation and design. The goal of Startup India is the development and innovation of products and services and increasing the employment rate in India. Under the Startup India initiative, eligible companies can get recognized as Startups by the Department for Promotion of Industry and Internal Trade (DPIIT) to access a host of tax benefits, easier compliance, IPR fast-tracking & more. The Department for Promotion of Industry and Internal Trade (DPIIT) is mandated to coordinate the implementation of the Startup India initiative with other Government Departments. DPIIT is the monitoring agency and the Small Industries Development Bank of India (Sidbi) is the operating agency for the Fund of Funds for Startups (FFS).
The objective is to reduce the regulatory burden on Startups, thereby allowing them to focus on their core business and keep compliance costs low.
"As on 1st March 2020, a total number of 3,37,335 employment (sic) has been reported by 27,137 DPIIT recognized startups," Commerce and Industry Minister Piyush Goyal said in a written reply in the Lok Sabha
Benefits of Registering as Startup With DPIIT
The benefits form a promising narrative of the government to support the entrepreneurial ecosystem, enabling jobs and innovations. In January 2019, only 4% of startup applicants got tax breaks within the first 30 months of the Startup India initiative.
Exemption under Section 56(2)(vii)(b) of the Income Tax Act, 1961
The exemption that is available to a registered startup is the levy of tax on this excess consideration. This exemption is particularly beneficial at the stage of an angel/VC round, where the angel or VC invests in the excess of the fair market value.
Exemption under Section 80-IAC
A registered startup can avail of an exemption from payment of income tax for three consecutive years out of the first 10 years from the date of its incorporation.
Exemption under Section 54(GB)
Section 54GB relates to tax on long-term capital gains received upon the sale of a residential property of an individual. The government has exempted individuals from payment of this tax if such long-term capital is invested in a registered startup.
Self-certification under labor and employment laws
A registered startup is allowed to self-certify their compliance under six labor laws and three environment laws. This is allowed for five years from the date of incorporation of the entity.
These exemptions on the inspection area on the following labor laws:
- The Building and Other Construction Workers’ (Regulation and Employment and Conditions of Service Act, 1996)
- The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1996
- The Payment of Gratuity Act, 1972
- The Contract Labour (Regulation and Abolition) Act, 1970
- The Employees Provident Funds and Miscellaneous Act, 1952
- The Employees State Insurance Act, 1948,
Exemption on inspection is allowed on the following environmental laws:
- The Water (Prevention & Control of Pollution) Act, 1974
- The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
- The Air (Prevention & Control of Pollution) Act, 1981
Registration of Intellectual Property
In the case of a patent application, the government fee is in the range of Rs 8,000/- to Rs 11,000/- depending on the nature of the patent but for a registered startup, it starts at INR 1,800. Further, the recognized startup will be eligible to claim a rebate of 80% of patent fees.
Relaxation in public procurement norms
Public procurement refers to the process by which governments and state-owned enterprises purchase goods and services from the private sector. To allow startups to participate in public procurement, the eligibility conditions of prior turnover and/or demonstration of experience and security cover for projects have been exempted depending on the goods or services.
- 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 crore 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
The documents required for the DPIIT Certificate of Recognition for Startups is listed as follows:
- Certificate of Incorporation or Registration of entity
- If the startup received any funding, the Proof of Funding need to furnish for the DPIIT Certificate of Recognition for Startups
- Document of awards or recognition received by the entity
- Document of the patent published by the entity (The patent should be published in the patent journals)
- A brief description of the nature of the business. The write-up should contain the following details:
- Details of how the startup is working towards innovation
- Development of products or processes or services
- The scalability in terms of employment generation or wealth creation
Proof document for Funds
- Support letter from the central or state Government authorities or any incubator which is duly recognized by the government of India can be submitted.
- The document for funding should not be less than 20% in equity by angel funds or incubation funds
Penalty for Forged Documents
- If the ministry finds that the uploaded documents are forged, then the applicant is liable to pay a penalty of 50% of the paid-up capital of the startup with an amount of Rs.25000.
The startups are not required to pay any fee to the Ministry of Commerce and Industry for obtaining the DPIIT Certificate of Recognition for Startups.
Steps of DPIIT Registration
- First Start-up India Recognition portal for Register with Start-up India to get the DPIIT Certificate of Recognition for Startups.
- Then provide Entity Details: Nature of Entity, Industry, Sector, Categories and Company Incorporation Number and Registration Date
- Then add the Full Address of the Entity
- Then give Details of the Authorized Representative
- Add Directors or Partner Details
- Details of Intellectual Property Right
- Details of funding
- Recognition received by the entity and Startup Activities
- After providing the information related to the entity, upload the required documents.
- After those the DPIIT Certificate of Recognition for Startups will be issued after examination of the application and documents submitted.
Once the ministry approves the application and provides the unique startup recognition number, the startup can be registered with tax benefits.