What is a startup?
A startup is a small business started with the objective to solve a problem. These are the companies which are generally operated by the founders or a single person. These companies are generally offering those services which the founders think are not available or are available in an inferior quality. Startups provide jobs opportunities to the people which helps in the economic development of the society.
Recognition of a startup shall be up to 7 years starting from the date of incorporation. Secondly, a startup must not exceed the threshold of 25 crores. Remember once your startup ceases to be eligible, you should intimate this to DIPP within the period of 21 days.
What is Startup India?
Startup India, initiated by the Government of India is a flagship initiative launched in January 2016. This initiative is taken by the government of India to boost the ecosystem for supporting innovation and startups in India. Through this scheme, the government is looking forward to driving sustainable economic development and enhance employment opportunities in India. The government of India recently announced Startup India action plan to meet the requirements of this initiative.
Registration of a startup with DIPP
Most of the startups are focused on gaining revenues and maximizing their profits by using various methods which is a good thing. At the initial stage, most of the startups are bootstrapping their organizations out of their hard-earned money. One of the ways to enhance your earnings is to reduce the cost. Government retains 30% of our income in form of tax which leads to increased cost. We can save this cost for three years by simply registering our startup with the Startup India initiative.
However, a rumour in the industry that all the startups can avail tax benefits is trending, which is a myth. Not all startups will get tax benefits. There is a difference between startup recognition and startup recognition with tax.
Some points to consider in this regard:
- Startup recognition is granted by the department of industrial policy and promotion (DIPP) and approval in regards to tax benefits shall be provided by the inter-ministerial board of certification.
- The tax benefit is available for both companies and LLP registered on or after 1st of April 2016 and with turnover not less than 25 crores. This provision is available under section 80 IAC of the Income Tax Act, 1961.
- Registered partnerships are also considered under in normal startup scenario, but if you want to claim tax benefits registered partnerships are not eligible for the scheme.
- Three years of tax benefits will be available and the startups have to choose in which lot of 7 years they want to avail the benefit. Tax benefit will remain consistent throughout the 3 years.
Benefits for startup India:
The benefits for startup India comprise of,`
- Startups will be permitted to self-certify compliance with nine labour laws and environmental laws. In the case of labour laws, no inspection will be conducted for a period of three years.
- Startup India enables companies to register through their mobile application and upload relevant documents. There will also be single window clearances for approvals, registrations and filing compliances among other things.
- Patent filing approach will be simplified. The Startup will enjoy a rebate of 80% of the fee in the patent application. The startup will bear only the statutory fees and the government will bear all facilitator fees.
- The Startup India programme will encourage research and innovation among students who are aspiring entrepreneurs and seven new research parks will be set up to provide facilities for startups in the R&D sector.
- Equal opportunities will be provided for both startups and experienced entrepreneurs. Earlier this was not possible because all applicants required either ‘prior experience’ or a ‘prior turnover’. But now, public appropriation norms have been relaxed for startups.
How to register your startup with Startup India
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.
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 ( https://www.startupindia.gov.in/content/sih/en/home-page.html) 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) A letter of recommendation/support
A letter of recommendation must be proposed along with the registration form. Any of the following,
(i) An Incubator established in a post-graduate college in India has to provide a recommendation (regarding innovative nature of business) from in a format specified by the Department of Industrial Policy and Promotion (DIPP); OR
(ii) 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
(iii) An Incubator recognized by the Government of India has to provide a letter of recommendation (regarding innovative nature of business) in DIPP specified format; OR
(iv) Any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network with not less than 20% in equity, duly registered with SEBI that endorses innovative nature of the business has A letter of funding; OR
(v) A letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; OR
(vi) 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: ANSWER WHETHER 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.
STEP 5: FINALLY, YOU MUST SELF-CERTIFY THAT YOU SATISFY THE FOLLOWING CONDITIONS
a) You must register your new company as a Private Limited Company, Partnership firm or a Limited Liability Partnership
b) Your business must be incorporated/registered in India, not before 5 years.
c) Turnover must be less than 25 crores per year.
d) Innovation is a must– the business must be working towards innovating something new or significantly improving the existing used technology.
e) Your business must not be as a result of splitting up or reconstruction of an existing business.
STEP 6: IMMEDIATELY GET RECOGNITION NUMBER
That’s it! 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 to be obtained 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 your paid-up capital of the startup with a minimum fine of Rs. 25,000.
STEP 7: OTHER AREAS
a) 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.
One of the key challenges faced by many startups has been accessing 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.
Key features of the Fund of Funds
- The Fund of Funds shall be managed by a Board with professionals from industry bodies, academia, and successful Startups.
- Life Insurance Corporation (LIC) shall be a co-investor in the Fund of Funds
- The Fund of Funds shall contribute to a maximum of 50% of the SEBI registered Venture Funds (“daughter funds”). In order to be able to receive the contribution, the daughter fund should have already raised the balance 50%. The Fund of Funds shall have representatives on the board of the venture fund based on the contribution made.
- The Fund shall ensure support to a broad mix of sectors such as manufacturing, agriculture, health, education, etc.
Key announcements made during the startup India action plan
- Startups shall be exempt from the payment of the income tax for three years.
- 80% shall be rebate availed by the startups on the filing of the patent application.
- A fast-track mechanism is also set up for patent applications.
- Up to 3 years there will be no compliance in regards to the environmental law compliance, labour post self-certification
- A hub for the startup India will be started with a single point of contact which can be available after site launch.
- Total corpus of 2500 crore will be the initial fund input by the government and up to 10000 crores in next 4 years shall be poured in.
- A mobile app shall be launched which will help the startups to register via that app within one day.
- Exemption from the taxation of capital gain.
Indian government id providing enough help to the startups to cope up with the economy. Moreover, many startups have registered themselves under this startup India regime so as to get maximum benefits from the government. As the result of this scheme more and more entrepreneurs are getting motivation and they are starting up their companies and contributing towards making society more efficient and comfortable. Generating more and more jobs for the country is the reward we are getting from the startup India scheme. Startup India is one of its kind schemes.
DISCLAIMER- This write-up is based on the understanding and interpretation of the author and the same is not intended to be professional advice.
Legal & Secretarial Consultant