After PM Narendra Modi launched the Start-up India initiative on January 17, 2017, the number of start-ups has exploded. With government tax breaks, incentives and assistance, and numerous benefits of start-up India schemes, an increasing number of people are starting their businesses. The most intriguing aspect is that the vast majority of the start-ups are led by young founders and owners, which speaks volumes about India's tremendous creative talent.
Since they historically lacked government help and had to manage everything on their own, very few people threw themselves into it wholeheartedly. However, since the initiative began, people have been more confident, believing that the government is on their side.
Furthermore, some people are unsure whether or not their business qualifies as a start-up. Keeping all of this in mind, we've written a blog post to assist you in this regard, outlining the conditions for being classified as a start-up, as well as the process for registering your business as one. Before delving into the mechanics of eligibility and the start-up India process, let us first describe what a start-up is.
What is a start-up?
A start-up is a company that solves a problem and is run by a small group of people.
Such businesses are formed when the founders see flaws in the current framework in which they have been operating and decide to address the problems by starting their own business.
Apart from that, a start-up can be formed when one or more founders have a potentially brilliant idea. The resources that such start-ups provide are those that they feel are currently inaccessible, or of low quality.
What are the eligibility criteria for a Start-up?
Any business that falls into one of the categories below will be referred to as a "start-up" and will be entitled to be recognised by the DPIIT to receive benefits from the Indian government.
1. Registration as a Private Company, LLP, or Partnership firm:
A start-up must be registered as a Private Limited Company (PLC) under Limited Liability Partnership (LLP) under the Indian Limited Liability Partnership Act, 2008, or the Indian Companies Act, 2013, or a partnership firm under the Indian Partnership Act, 1932, to be considered for this scheme.
2. The start-up must not be the result of a reorganisation:
A start-up should not be established by severing or reconstructing an existing company. This scheme would not apply to a company that is created by separating an entity into two or more companies.
3. The start-annual up's turnover must not exceed INR 25 crores:
The start-annual up's turnover must not have exceeded INR 25 crores in any of the previous five years since its inception to be eligible for this scheme.
4. The start-up can't be more than 5 years old:
This scheme will be open to all Indian businesses that have been established within the last five years of the policy's effective date. Simply put, this government start-up program is open to all businesses that were formed or registered after February 15, 2011.
5. The organisation must be interested in the creation of a new product or service:
This program is only for start-ups who are creating a new product, service, or process. There are three requirements for this criterion:
- The start-up must be developing, deploying, or commercialising a new product, process, or service that is based on technology or intellectual property.
- The start-up must aim to build or add value to customers or workflow by creating and commercialising a new product or service, or a substantially enhanced existing product or service.
- The start-up cannot be exclusively based on producing goods or services with little or minimal market potential, such as undifferentiated products or services, with little or limited differentiation.
6. DIPP must have given the start-up approval that the company is innovative:
- Any new business must get approval from the Department of Industrial Policy and Promotion's (DIPP) Inter-Ministerial Board (2). A start-up must send an application to the Inter-Ministerial Board of DIPP to validate the creative nature of their enterprise, along with the following supporting documents:
- Recommendation from an Indian Incubator based in a Post-Graduate College.
- Recommendation from a Government of India-funded incubator concerning a scheme to encourage innovation.
- Recommendation from a Government of India-approved incubator.
- A letter of at least 20% equity funding from a Securities Exchange Board of India-registered Incubation Fund, Angel Fund, Private Equity Fund, Accelerator, or Angel Network (SEBI). Such a fund must not be included in any negative list of funds that DIPP should issue in the future.
- A letter of funding from the Central Government or a state government as part of an innovation program.
- In areas related to the essence of the company being promoted, a patent is filed and published in the Indian Patent Office Journal.
For the first ten years after incorporation, the business remains a start-up. The Indian government recently increased this to ten years from seven years to provide businesses with more opportunities and tax breaks in the long run. In the case of biotechnology start-ups, the term will last up to ten years from the date of incorporation/registration.
How to apply under this scheme?
Here are the steps to be undertaken for the start-up India process:
- Go to https://startupindia.gov.in/registration.php to access the Start-up India Portal.
2. Enter the name of your legal entity or Start-up.
3. Type in your company's incorporation/registration number.
4. Enter the date of your company's incorporation or registration.
5. Type in your PAN number (optional).
6. Fill in your name, address, pin code, and state.
7. Fill in the Approved Representative's details.
8. Fill in the Director and Partner Detail.
9. Follow the instructions for uploading the necessary documents and self-certification.
10. Submit the company's certificate of incorporation/registration.
Start-up India benefits
There are various start-up India registration benefits that any business organisation yields. They can be enumerated as follows:
- Faster enforcement, a smoother exit process for failed start-ups, legal assistance, patent application monitoring, and a website to eliminate knowledge asymmetry.
- Exemptions from income and capital gains taxes for qualifying entrepreneurs, as well as a fund of funds to inject more capital into the business ecosystem and a credit guarantee program.
- Various incubators and innovation laboratories, as well as events, competitions, and grants, have been created.
- Self-certification is required for compliance with nine environmental and labour laws.
- Simple business dissolution through which under the 2016 Insolvency and Bankruptcy Code, you have 90 days to file.
- Start-up Patent Application and IPR Protection will let you get a head start on filing patents and get up to an 80% discount.
- Funds for Alternative Investment Funds to invest in start-ups.
Start-up India tax exemptions
There are many exemptions and start-up India tax benefits available under this scheme. They are as follows:
1. There will be a three-year tax holiday in a seven-year cycle.
This scheme was open to start-ups that were established between April 1, 2016, and March 31, 2021. The eligibility period has been extended until March 31, 2022, as part of Budget 2021. Such start-ups will be eligible for a tax refund of 100 per cent on profits for three years in a row if their annual turnover does not exceed INR 25 crores in any given financial year.
2. Exemption from long-term capital gain tax
Amounts up to INR 50 lakh can be invested in the long-term defined asset. For a term of three years, this sum must be invested in the stated fund. If money is withdrawn before three years, the exemption is repealed in the year it is withdrawn only if the long-term capital gain, or a portion of it, is invested in a Central Government-approved fund within six months of the asset's transfer date.
3. Exemption from taxes on assets that are worth more than their fair market value
The government has waived the tax on investments in qualifying start-ups that exceed their fair market value. These investments may come from local angel investors, relatives, or funds that aren't registered as venture capital funds. Incubator contributions that surpass fair market value are also excluded.
4. Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act (Angel Tax):
- The company must be a DPIIT-approved start-up.
- After the proposed share problem, if any, the Start up’s total paid-up share capital and share premium does not exceed INR 25 crore.
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Q. In India, which certificate is needed for a company to be recognised as a startup?
Ans. For any company to be recognised as a start-up, it must have a Certificate of Registration from Start-up India Hub.
Q. What Indian government department is in charge of implementing the Start-up India program?
Ans. The Indian government's Department of Industrial Policy and Promotions (DIPP) is in charge of implementing it.
Q. What are the key features of this scheme?
- Newcomers are offered a three-year tax-free period.
- The government has set aside INR 2500 crore for start-ups, as well as an INR 500 crore credit guarantee funds.
Q. What are the start-up India registration fees?
Ans. Start-up Trademark Registration: The trademark registration fees for Start-up Entities are INR 4,500/- for online filing, and INR 5,000/- for physical filing, while the fees for others are INR 9000/- or INR 10,000/-, respectively.