Startup India Scheme

Startup India Scheme is an initiative by the Government of India for generation of employment and wealth creation. The goal of Startup India is the development and innovation of products and services and increasing the employment rate in India. The Startup India has initiated several programs for building a robust startup ecosystem and transforming India into a country of job creators instead of job seekers. To achieve these objectives, a lot of programs have been started and are managed by the Department for Industrial Policy and Promotion (DPIIT).

Startup Company: What Is It?

Startups are young companies founded to develop a unique product or service or improving an existing product or service in such a way that it meets the requirements of the customers.

Startups are rooted in innovation, addressing the deficiencies of existing products or creating entirely new categories of goods and services, thereby disrupting entrenched ways of thinking and doing business for entire industries. That’s why many startups are known within their respective industries as “disruptors.”

You may be most familiar with startups in Big Tech—think Facebook, Amazon, Apple, Netflix, Google, collectively known as FAANG stocks—but even companies like WeWork, Peloton and Beyond Meat are considered startups.

The notification issued by the department for promotion of industry and internal trade on February 19, 2019 provided the definition of a startup. Accordingly, a Startup 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
• has a turnover that is not more than Rs 100 crores during any of the financial years since incorporation or registration
• 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 startup. Also, a business entity shall cease to exist as a startup:

• once it completes 10 years from the date of incorporation or registration and
• if its turnover for any of the previous financial years exceeds Rs. 100 crores.

 

Benefits from DPIIT

Under the Startup India Initiative, the companies which are registered under DPIIT are eligible to receive the following benefits:

1. Simplification of Work

This initiative simplifies the work for the new entrants in order to motivate them. This includes following steps taken by the government:

• The government has set-up Startup India hubs where all the works related to incorporation, registration, grievance handling, etc. are undertaken.
• An application and an online portal is set-up by the government to facilitate registration from anywhere and anytime.
• The patent acquisition and registration is now fast for the startups.
• Insolvency and Bankruptcy Bill, 2015 facilitates fast winding up of the startups. A startup can wind-up itself within 90 days of the incorporation if the business has not been fruitful.

2. Finance Support

In order to motivate the startups, the government provides financial support to the startups through different initiatives. The government has set up a corpus of Rs.10,000 crores for 4 years (Rs.2500 crore each year). From such fund, the government invests in various startups.

Another mode of financial support provided is exemption from income taxes. Approved startups can avail exemption from payment of income taxes for a period of 3 years.

3. Incubation & Industry-Academia Partnerships – Creation of numerous incubators and innovation labs, events, competitions and grants.

SELF CERTIFICATION

Ease of business comes here into the picture as self-certification resembles reducing the regulatory burden on the startups to allow them to concentrate on their core business, also to keep compliance costs low.

Benefits

• Simple online procedure is provided for the startups to certify themselves for the compliance of 6 Labour laws and 3 Environmental Laws.
• For labour laws, no inspection will be carried out on the premises for 5 years unless a written complaint of violation is filed and approved by a senior to the inspection officer.
• In case of environmental laws, startups certified as ‘White category’ by the Central Pollution Control Board (CPCB), will be allowed to self-certify compliance and few random inspections will be carried out here and there.

Labour 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

Environment 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

 

Eligibility to Self-Certification of the companies- 

Though the company is termed as a startup if it was incorporated within 10 years, the eligibility for self-certification is granted only startups that are incorporated not before 5 years.

Tax Exemption under 80IAC

Eligible startups are exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation.

Eligibility to avail tax exemption under 80IAC

• The entity should be a DPIIT recognized Startup.
• Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
• The Startup should have been incorporated on or after 1st April 2016.

Registration Process & Documents-
Access Startup India portal and register
After registration, apply for DPIIT recognition
Access the Section 80 IAC exemption application
Fill in all details with the required documents and submit the application form

 

Section 56 Exemption

Exemption under Section 56(2) (VIIB) of Income Tax Act

• 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
• Considerations of shares received by eligible startups for shares issued or proposed to be issued by all investors shall be exempt up to an aggregate limit of ?25 crore," the official added.

Eligibility to avail tax exemption under Section 56

• Should be a private limited company
• Should have been recognised as a DPIIT. To get DPIIT recognition, click on “Get Recognised” below.
• Not Investing in specified asset classes.
• For being eligible for exemption under Section 56(2)(viib), a startup should not be investing in immovable property, transport vehicles above ?10 Lakh, loans and advances, capital contribution to other entities and some other assets except in the ordinary course of its business.

Registration Process

• Registration to be done at the Startup India Portal.
• Get DPIIT Recognition.
• File the up Section 56 Exemption application form from this link.
• Startup company will receive an email once the registration is activated.

Easy Winding up of Company

This is to ease the shut down or wind up operations of the startups. This will allow the entrepreneurs to reallocate capital and resources to more productive avenues faster.
To encourage entrepreneurs to experiment with new and innovative ideas without facing complex exit processes where their capital stuck in case of business failure. The Windup of startups can be done only in 90 days under insolvency & Bankruptcy code 2016, which provides easy of winding up of entities over the other laws in time being force.

Startup Patent Application and IPR Protection

The objective is to reduce the cost and time taken for a startup to acquire a patent, making it financially viable for them to protect their innovations and encouraging them to innovate further.   

• fast tracking of startup patent application,
• providing 80% rebate in filing of patents as compared to other companies
• providing 50% rebate in filing of trademarks as compared to other companies
• panel of facilitators to help in filing of IP applications and
• government support to bear facilitation costs

Eligibility For Startup Registration     

• The company to be formed must be a private limited company or a limited liability partnership.
• It should be a new firm or not older than five years, and the total turnover of the company should be not exceeding 25 crores.
• The firms should have obtained the approval from the Department of Industrial Policy and Promotion (DIPP).
• To get approval from DIPP, the firm should be funded by an Incubation fund, Angel Fund or Private Equity Fund.
• The firm should have obtained a patron guarantee from the Indian patent and Trademark Office.
• It must have a recommendation letter by an incubation.
• Capital gain is exempted from income tax under the startup India campaign.
• The firm must provide innovative schemes or products.
• Angel fund, Incubation fund, Accelerators, Private Equity Fund, Angel network must be registered with SEBI ( Securities and Exchange Board of India).

Application Procedure

Step 1: Log on Startup India Portal https://startupindia.gov.in/registration.php.

Step 2: Enter your Legal Entity.

Step 3 : Enter your Incorporation/Registration No.

Step 4 : Enter your Incorporation/Registration Date.

Step 5: Enter the PAN Number (optional).

Step 6: Enter your address, Pin Code & State.

Step 7: Enter details of the Authorised Representative.

Step 8: Enter the Details of  Directors and Partners.

Step 9: Upload the essential documents and Self-certification in the prescribed manner.

Step 10: File the Incorporation/Registration certificate of the company.

Conclusion

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.