Blog Details

Author – Advocate Khyati Dhuparr and Ankit Ahuja 

There has been a lot of misconception about “what is a startup” and “how can a startup avail the benefits provided to a startup by the Government of India under the Startup India Action Plan”. 

As per the Ministry of Corporate Affairs -DPIIT Notification dated February 19, 2019

A Start-Up is:

·     An entity incorporated or registered if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under Section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India. (Such entity should have been in existence for a period less than 10 years).  

·     An entity which has a turnover of less than INR100 crores in any preceding Financial Year since its incorporation or registration. If the annual turnover has exceeded INR100 crores in any preceding financial year then it will lose its startup recognition. 

·     An entity which works towards innovation, development or improvement of products or processes or services, or if it's a scalable business model with a high potential of employment generation or wealth creation.

An entity resulting from splitting up or reconstruction of an existing business shall cease to be considered as a “Startup”. 

All of these above-mentioned features must be present in an entity to be eligible under Startup India Initiative.

BENEFITS AVAILABLE TO STARTUPS IN INDIA:

1.    No letter of recommendation from an incubator/industry association shall be required for either recognition or tax benefits for a startup. A letter of recommendation from an incubator was earlier required for a Startup, which was very troublesome for some start-ups and it was made available to only the start-ups who require it. 

2.    Startups falling under the list of 36 “white” category industries will not require Environment clearance under the following Environment related legislations:

i.        The Water (Prevention and Control of Pollution) Act, 1974

ii.       The Water (Prevention and Control of Pollution) Cess (Amendment) Act, 2003

iii.      The Air (Prevention and Control of Pollution) Act, 1981

3.    A startup can self-certify compliance for a period of 1 year with the Apprenticeship Rules, 1992 of Apprenticeship Act 1961 as allowed by Ministry of Skill Development and Entrepreneurship. 

4.    A Startups may self-certify compliance under the 6 Labour Laws from 3 to 5 years (As per the notification of 12.01.2016 of Ministry of Labour and Employment (MSDE). 

5.    50% rebate is available to startups for registration of trademarks. 

6.    To create a conducive ecosystem for growth of Startups and provide an equal platform to Startups as of a Micro Small and Medium Scale Enterprises (MSME)in public procurement. 

7.    On 16^thJune 2017, Ministry of Corporate Affairs (MCA)notified Sections 55 to 58 of the Insolvency and Bankruptcy Code, 2016 related to the Fast Track process and suggested that this process shall apply to Start-ups (other than the partnership) as defined by DPIIT. After this, startups can wind up their business within a period of 90 days from making an application. (The period of 90 days was previously a period of 180 days).  

8.    The Startup IndiaYatrais a platform which aims to help companies (especially in rural areas) realize their startup dream. The Startup India Yatra aims to reach every corner of India and help everyone put forward their dream. 

9.    Ucchatar Aavishkar Yojana (UAY) was established to promote industry and outcome-oriented research projects by students. INR 475 Crore for 2016-18 has been invested under UAY and 85 research works from IITs have till date been approved. Under this scheme, INR 162 crore has been disbursed for research proposals from IITs of India. 

10.  The objective of Technology Business Incubators (TBIS)is to promote successful innovation through incubation and R&D. TBIS will encourage more efficient development and growth of startups and will help them in competing with dominant organisations in the same industry. 

11.  Research Parksset up under the Startup India initiative, is to help in innovation through incubation and joint Research and Development (R&D) which can be established between the academic sector and the industry sector. Research Parks setup under the Startup India initiative is to promote the less profitable stages of startup and to let it grow in its initial and essential years of development. 

12.  Atal Innovation Mission provides guidelines to utilised private sector expertise to set up incubators which help the start-ups grow. Guidelines for organizing annual grand challenge for solutions to some problems faced by industry and those posed by the complex regulation of companies have been formulated to ease the initial years for startups. 

13.  Startup India has launched Learning & Development Module which is an interactive online learning which will help in educating Startups and aspiring entrepreneurs to enhance their skills which can be used to innovate and grow. Over more than 2,30,000 people have applied for this course as of 2018. 

14.  Fund of Funds for Startups (FFS) set up under Startup India initiative, a 'fund of funds' of Rs. 10,000 crores which is being managed by SIDBI was set up to help the providing the startups with the funding to fuel the startups and to provide funding to them to carry out their daily tasks and also expand their portfolio.

TAX BENEFITS 

1.    Income Tax Exemption 

The Finance Act, 2016 has made a provision for Startups to get income tax exemption and is eligible for getting 100% tax rebate on profit for a period of 3 years. To avail these benefits, the startups have to get a Certificate of Eligibility from the DPIIT, which is the regulating body for startups in India. 

2.    Exemption from Capital Gains 

Under Section 54 EEof the Finance Act, 2016 exemption of capital gain up to Rs. 50 lakhs arising out of transfer of long-term capital asset invested in a fund listed under the notification of the Central Government has been provided. Also, Section 54 GBof Income Tax Act, 1961 has been amended to grant exemption to startups from tax on capital gains arising out of sale of residential house or a residential plot of land if the amount of net consideration is invested in equity shares of eligible Startup for utilising the same for purchase of assets allowed by the Central Government to obtain exemption under this section. 

3.    Exemption from Angel Tax 

Section 56(2) (viib) of the Income Tax Act, 1961 provides that angel tax applies to a company where they have raised money through issue of shares at a price exceeding the fair market value of those shares. The excess money raised over and above the fair market value will be treated as income and will be taxed under the Income Tax Act, 1961.

As per the notification of DPIIT dated 19^thFebruary 2019 a clarification was made in this context that, this section would be applicable to start-ups as well and that start-ups are also included in the definition of said company under this section.

IMPORTANT NOTE:

·     It is compulsory that a startup must be registered with the DPIIT and under the Startup India Action Plan to obtain the exclusive benefits provided to a startup. Merely falling under the category of a startup will not grant the entity exemptions available to a startup.

·     The government has notified changing the name of the regulatory body for start-ups from the Department of Industrial Policy & Promotion (DIPP) under the Ministry of Corporate Affairs to theDepartment for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry.