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Startup India Scheme: Eligibility & Benefits of The Scheme
On January 16, 2016 the government of India launched the Startup India Initiative . This was undertaken in order to support entrepreneurs, create vigorous startup ecosystem as well as shift India towards creating jobs rather than seeking them.
The very objective of the Startup India Scheme was to build a strong ecosystem for promoting innovation and startups in the country.
Further, such a drive would encourage sustainable economic growth and create large scale employment opportunities. Thus, through this program the government intended to empower startups to grow through innovation and design.
So, before understanding the procedure for registration with Startup India Scheme, let’s understand the meaning of startup and various benefits that startups can avail under this scheme.
What is a Startup?
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 of Startup India Scheme
There are a host of benefits provided to the startups by the Startup India Scheme. However, in order to avail these benefits, an entity is required to be recognized by the DPIIT as a startup.
1. Self Certification under Labor and Environmental Laws
Startups are allowed to self certify their compliance under six labor laws and three environment laws. This is allowed for a period of five years from the date of incorporation of the entity.
Furthermore, such a benefit is given in order to reduce the regulatory burden for startups so that they can focus on their core business and keep compliance costs low.
2. Tax Exemption for Three Years
The profits earned by the recognized startups having granted inter ministerial board certificate are exempted from income tax for three consecutive years.
Such an exemption is given to facilitate business growth as well as cater to the working capital requirements during the initial years.
3. Tax Exemption on Investment Above Fair Market Value
In case a startup:
- has inter – ministerial board certificate and
- receives consideration from the issue of shares exceeding the face value of such shares
then the consideration upto Rs. 10 crores received from such shares exceeding the fair market value of such shares is exempted from tax.
4. Easy Winding Up of Company
Startups also known as fast track firms can be wound up within 90 days as against 180 days for other companies.
Further, an insolvency professional shall be appointed for liquidating the assets and paying creditors. This would be done within six months of filing an application to make such an exit.
5. Startup Patent Application and IPR Protection
Startup India provides high quality intellectual property services and resources to help startups protect and commercialize their IPRs. This includes:
- 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
6. Relaxation in Public Procurement Norms
In order to meet quality and technical specifications all government of India departments, ministries and PSUs have been given authority to ease the norms with regards to public procurements. Thus, a startup can avail exemptions on:
- earnest money deposit
- prior turnover and
- experience requirements in case of government tenders
Further, startups can now get listed as sellers on Indian Government’s largest e-Procurement portal that is Government– Marketplace (GeM)
7. SIDBI Fund of Funds
The government of India has set aside a corpus fund of Rs. 10,000 crore. This fund is managed by SIDBI and is intended to provide equity funding support for the development and growth of innovation driven enterprises.
The nature of such a corpus is fund of funds. This means that the government contributes towards the capital of SEBI registered funds. These funds further invest in startups.
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.