- Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities.
- The government presented Startup India as a gift to “young people” in our country who wants to set up an innovative new business.
Start-up is an entity:
- that is into existence for upto 10 years from the date of its incorporation or registration.
Provided such an entity is incorporated in India as a:-
- Private Limited Company as per the Companies Act, 2013 or
- Partnership Firm as per section 59 of the Partnership Act, 1932 or
- Limited Liability Partnership as per Limited Liability Partnership Act, 2008 in India.
- has a turnover that is not more than Rs.100 crores during any of the financial years since incorporation.
- is working towards innovation, development or improvement of products or services or processes. Or the entity has a scalable business model having a high potential of employment generation or wealth creation.
Furthermore, an entity that is created by splitting or reconstructing an existing business unit is not considered a start up. Also, a business entity shall cease to exist as a start up :
- once it completes 10 years from the date of incorporation or registration.
2. if its turnover for any of the financial years exceeds Rs.100 crores.
Procedure for Registration:
Step 1: Incorporate your Business
You must first incorporate your business as a Private Limited Company or a Partnership firm or a Limited Liability Partnership.
You have to follow all the normal procedures for registration of any business like obtaining the certificate of Incorporation/Partnership registration, PAN, and other required compliances.
No requirement of:
- Letter of Recommendation Sanction Letters • Udyog Aadhar • MSME Certiﬁcate • GST Certiﬁcate.
Step 2: Register with Startup India
Then the business must be registered as a startup. The entire process is simple and online. All you need to do is log on to the Startup India website and fill up the form with details of your business and upload certain documents.
Step 3: Documents to be uploaded in PDF format only
- A letter of recommendation/ support: A letter of recommendation must be submitted along with the registration form. Any of the following will be valid-
- A recommendation (regarding innovative nature of business) from an Incubator established in a post-graduate college in India , in a format specified by the Department of Industrial Policy and Promotion (DIPP); or
- A letter of support by an incubator, which is funded (in relation to the project) by Government of India as part of any specified scheme to promote innovation ; or
- A letter of recommendation (regarding innovative nature of business), from an Incubator, recognized by the Government of India in DIPP specified format; or
- A letter of funding of not less than 20% in equity, by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network, duly registered with SEBI that endorses innovative nature of the business; or
- A letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or
- A patent filed and published in the journal by the Indian Patent Office in areas affiliated with the nature of the business being promoted.
b) Incorporation/Registration Certificate: You need to upload the certificate of incorporation of your company /LLP (Registration Certificate in case of partnership)
c) Description of your business in brief : A brief description of the innovative nature of your products /services.
Step 4: Confirm if you would like to avail tax benefits
Startups are exempted from income tax for 3 years. But to avail these benefits, they must be certified by the Inter-Ministerial Board (IMB). Start-ups recognized by DIPP, Govt. of India can now directly avail IPR related benefits without requiring any additional certification from IMB.
Tax Exemptions available to startups:
1. 80 IAC Tax exemption:
Post getting recognition a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.
Eligibility Criteria for applying to Income Tax exemption (80IAC):
- The Entity should be a recognized
- Only a Private Limited Company or LLP is eligible for Tax Exemption under Section 80 IAC.
- The Startup should have been incorporated after 1st April, 2016.
- Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)
Post getting recognition a Startup may apply for Angel Tax Exemption.
Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:
- The Entity should be a DPIIT recognized
- Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.
Currently, startups with turnover up to Rs.25 crores are allowed deduction of 100% of its profits for three consecutive assessment years out of 7 years if the total turnover does not exceed Rs.25 crore.
Under Budget 2020, Finance Minister has increased the turnover limit from existing Rs. 25 crores to Rs.100 crores for the benefit of large startups.
Step 5: Self-certify that you satisfy the conditions
- You must register your new company as a Private Limited Company, Partnership Firm Or Limited Liability Partnership.
- Your business must be incorporated/registered in India, not before 5 Years.
- Turnover must be less than Rs. 25 crore per year.
- Innovation is a must– the business must be working towards innovating something new or significantly improving the existing used technology.
- Your business must not be as a result of splitting up or reconstruction of an existing business.
Step 6: Immediately get recognition number
On applying you will immediately get a recognition number for your startup. The certificate of recognition will be issued after the examination of all your documents.
However, be careful while uploading the documents. If on subsequent verification, it is found that the required document is not uploaded/wrong document uploaded or a forged document has been uploaded, then you shall be liable to a fine of 50% of paid-up capital of the startup with a minimum fine of Rs. 25,000.
Step 7: Other Areas
To reduce the regulatory burden on Startups, thereby allowing them to focus on their core business and keep compliance costs low.
- Startups shall be allowed to be self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure.
- In the case of labour laws, no inspections will be conducted for a period of 5 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.
- 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.
Patents, trademarks and/or design registration
If you need a patent for your innovation or a trademark for your business, you can easily approach any from the list of facilitators issued by the government. You will need to bear only the statutory fees thus getting an 80% reduction in fees.
Labour Laws & Environment Laws:
- The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
- The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
- The Payment of Gratuity Act, 1972
- The Contract Labour (Regulation and Abolition) Act, 1970
- The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
- The Employees’ State Insurance Act, 1948
- 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
One of the key challenges faced by many startups, has been the access to finance. Due to lack of experience, security or existing cash flows, entrepreneurs fail to attract investors. Besides, the high- risk nature of startups, as a significant percentage fail to take-off, puts off many investors.
In order to provide funding support, Government has set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). The Fund is in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.
To make it easier for Startups to shut down or wind up operations ,with the objective of allowing entrepreneurs to reallocate capital and resources to more productive avenues faster. To encourage entrepreneurs to experiment with new and innovative ideas, without having to face complex and long –down exit processes where their capital become interminably stuck in the event of business failure.
As per the insolvency and bankruptcy code, 2016, startups with simple debt structures, or those income specified criteria can be wound up within 90 days of filling an application for insolvency. An insolvency professional shall be appointed for the startup, who shall thereafter be in change of 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.
Every year the government organizes National Startup Awards, a competitive platform where startups from all over India compete with each other for a grand prize of 50 lacs. The competition has 6 challenges where they select 6 winners, each will get 50 lacs along with other benefits.
Thus, in order to boost job creation and entrepreneurship, the Government of India launched the Startup India Scheme. Under this scheme, the government intends to give a host of tax benefits, make compliance easy, fast track IPR tracking and offer other set of benefits. These benefits are offered so that entrepreneurs can focus on their core business and do not have any regulatory burden.