Ever since Indian Prime Minister Shri Narendra Modi launched the Startup India campaign, many Indian entrepreneurs were excited about a number of promising initiatives which encourage digital entrepreneurship. Startup businesses were expected to benefit from the tax reduction, funding support and many other benefits from the government. However, startups are entangled in tough eligibility norms and more than two-thirds of the companies that applied for the scheme have been rejected by the nodal body – the Department of Industrial Policy and Promotion. Most of these rejections were because the companies couldn’t secure certifications declaring them to be innovative businesses.
There’s no doubt the evaluation were hard, but the question is, are all the startups really eligible for the benefits that were announced on January 16, 2016?
What is a startup?
According to the definition coined by government authorities, a startup is a newly established business, usually small but innovative, started by 1 or a group of individuals to offers a new product or service that is not being given elsewhere in the same way. The business either develops a new product/ service or redevelops a current product/service into something better.
In addition, Ministry of Commerce and Industry released a notification to define ‘startups’. According to the government notification, below are the criteria to be recognized as a startup.
- It must be an entity registered/incorporated as: –
- Private Limited Company under the Companies Act, 2013; or
- Registered Partnership firm under the Indian Partnership Act, 1932; or
- Limited Liability Partnership (LLP) under the Limited Liability Partnership Act, 2008.
- Five years must not have elapsed from the date of incorporation/registration.
- Annual turnover (as defined in the Companies Act, 2013) in any preceding financial year must not exceed Rs. 25 crore.
- Working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.
- The Startup must aim to develop and commercialise a new product or service or process; significantly improved existing product or service or process that will create or add value to the customers.
- The Startup must not merely be engaged in:
- Developing products or services or processes which do not have the potential for commercialisation; or
- Undifferentiated products or services or processes; or
- Products or services or processes with no or limited incremental value for customers or workflow
- The Startup must not be formed by splitting up, or reconstruction, of a business already in existence.
- The Startup has obtained certification from the Inter-Ministerial Board, set up by DIPP to validate the innovative nature of the business, and make sure that you satisfy the following conditions: –
- Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an incubator established in a post-graduate college in India; or
- Be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
- Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an incubator recognized by GoI; or
- Be funded by an Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI* that endorses innovative nature of the business; or
- Be funded by the Government of India as part of any specified scheme to promote innovation; or
- Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of the business being promoted.
So, if you think your newly incorporated business fulfil the criteria then let’s go ahead and follow below the steps to register your startup under Startup India initiative.
Step 1: Business Incorporation
As above mentioned, you need to incorporate your business as a Private Limited Company or a Partnership firm or a Limited Liability Partnership. After that, you shall be obtaining the certificate of Incorporation/Partnership registration, PAN, and other required compliances. Do you want to know how to register a company in India? Follow the link.
Step 2: Register with Startup India
The entire process is simple and you can register your business online. All you have to do is log on to the Startup India website (link) and fill up the form with details of your business and upload below-listed documents.
- Letter of recommendation/support
A letter of recommendation must be submitted along with the registration form. Any of the following will be valid for this purpose-
(i) 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
(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) A letter of recommendation (regarding innovative nature of business), from an Incubator, recognized by the Government of India in DIPP specified format; OR
(iv) 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
(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.
2. Incorporation/Registration Certificate
You need to upload the certificate of incorporation of your company/LLP (Registration Certificate in case of a partnership)
3. Brief Description of Your Business
A brief description of the innovative nature of your products/services.
Step 3: Answer whether you would like to avail tax benefits
Under the Startup India initiative, startups are exempted from income tax for 3 years. This has been extended by two more years to April 1, 2021. 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 4: Get the Recognition Number
That’s all. Now you will get the certificate of recognition after the examination of all your documents.
Note: Be careful while uploading all 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.
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