Start-up India Recognition

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MJS_Start-up India Recognition

Start-up India – A Government Initiative

On January 16, 2016 the government of India launched the Start-up India
Initiative. This was undertaken in order to support entrepreneurs, create
vigorous start-ups ecosystem as well as shift India towards creating jobs rather
than seeking them.

The very objective of the Start-up India Scheme was to build a strong ecosystem
for promoting innovation and start-ups 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 start-ups to grow through innovation and

So, before understanding the procedure for registration with Start-up India
Scheme, let’s understand the meaning of start-ups and various benefits that
start-ups can avail under this scheme.

How is Start-up Recognised?

The notification issued by the department for promotion of industry and internal
trade on February 19, 2019 provided the definition of a start-ups. Accordingly, a
Start-up is an entity:

  • that is into existence for up to 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 start-up. Also, a business entity shall cease to exist as a start-up:
  • 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

Action Plan of Start-up India Scheme

The action plan of Start-up India is based on the following factors:

1. Simplification of Work
This initiative simplifies the work for the new entrants in order to motivate them. This includes following steps taken by the government:

  •  Firstly, the government has set-up Start-up India hubs where all the works
    related to incorporation, registration, grievance handling, etc.
  • Secondly, an application and an online portal is set-up by the government to
    facilitate registration from anywhere and anytime
  • Thirdly, the patent acquisition and registration are now fast for the start-ups.
  • Lastly, according to the Insolvency and Bankruptcy Bill, 2015 facilitates fast
    winding up of the start-ups. A new start-up can wind-up itself within 90 days
    of the incorporation.

2. Finance Support

  • In order to motivate the start-ups, the government provides various financial
    supports. These steps taken by the government are as follows:
  • The government has set up a corpus of Rs.10,000 crores for 4 years (Rs.2500
    crore each year). From such fund, the government invests in various start ups
  • Special funds are provided, investment in which leads to exemption from the
    income tax on the Capital Gain. Income tax exemption is available for the
    start-ups for the first 3 years after the incorporation.
  • Under The Income Tax Act, where a Start-up (company) receives any
    consideration for issue of shares which exceeds the Fair Market Value of the
    shares, such excess consideration is taxable in the hands of the recipient as
    Income from Other Sources.

11 benefits to start-ups by Indian Government

Start-ups are becoming very popular in India. The government under the
leadership of PM Narendra Modi has started and promoted Start-up India.

To promote growth and help Indian economy, many benefits are being given to
entrepreneurs establishing start-ups.

1. Financial Benefits

Most of the start-ups are patent based. It means they produce or provide unique
goods or services. In order to register their patents, they have to incur a heavy cost
which is known as the Patent Cost.

Under this scheme, the government provides 80% rebate on the patent costs.
Moreover, the process of patent registration and related is faster for them. Also,
the government pays the fees of the facilitator to obtain the patent.

2. Reduction in cost

The government also provides lists of facilitators of patents and trademarks.
They will provide high quality Intellectual Property Right Services including fast
examination of patents at lower fees. The government will bear all facilitator ees and the start-ups will bear only the statutory fees. They will enjoy
80% reduction in cost of filing patents.

3. Easy access to Funds

A 10,000 crore rupees fund is set-up by government to provide funds to the
start-ups as venture capital. The government is also giving guarantee to the
lenders to encourage banks and other financial institutions for providing venture

4. Income Tax Benefits

80 IAC Tax exemption:

Post getting recognition a Start-up may apply for Tax exemption under section 80
IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Start-up
can avail tax holiday for 3 consecutive financial years out of its first ten years since

Eligibility Criteria for applying to Income Tax exemption (80IAC):

a. The entity should be a recognized Start-up
b. Only Private limited or a Limited Liability Partnership is eligible for Tax exemption
under Section 80IAC
c. The Start-up should have been incorporated after 1st April, 2016
But they can avail it only after getting a certificate from the Inter-Ministerial Board.
Also, they can claim exemption from tax on Capital Gains if they invest money in
specified funds.

Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)

Post getting recognition a Start-up may apply for Angel Tax Exemption.
Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:
a. The entity should be a DPIIT recognized Start-up
b. Aggregate amount of paid up share capital and share premium of the Start-up
after the proposed issue of share, if any, does not exceed INR 25 Crore.

5. Apply for tenders

Start-ups can apply for government tenders. They are exempted from the “prior
experience/turnover” criteria applicable for normal companies answering to
government tenders.

6. R&D facilities

Seven new Research Parks will be set up to provide facilities to start-ups in the
R&D sector

7. No time-consuming compliances

Various compliances have been simplified for start-ups to save time and money.
Start-ups shall be allowed to self-certify compliance (through the Start-up
mobile app) with 9 labour and 3 environment laws

8. Tax saving for investors

People investing their capital gains in the venture funds setup by government
will get exemption from capital gains. This will help start-ups to attract more

9. Choose your investor

After this plan, the start-ups will have an option to choose between the VCs,
giving them the liberty to choose their investors.

10. Easy exit

In case of exit – A start-ups can close its business within 90 days from the date
of application of winding up

11. Meet other entrepreneurs

Government has proposed to hold 2 start-ups fests annually both nationally and
internationally to enable the various stakeholders of a start-ups to meet. This
will provide huge networking opportunities.

Start-ups are being highly encouraged by the government. The benefits enjoyed
by them are immense, which is why more people are setting up start-ups. If you
are one of them, MJS & Co. can help you on your way.

Challenges faced by Start-up India:

1. People generally believe start-ups are just about thinking about a new idea or
plan. But in reality, execution of such plan is more necessary than just thinking
about it.

2. The view or perspective of the government on start-ups India plan is quite shortterm in nature. It does not look at the long-term path of the start-ups.

3. For the success of any new business, competent workforce is necessary. But in
case of start-ups, skilled workforce is not possible due to the lack of funds at the
initial phase.

4. The risk of reaching failure is greater in the start-ups as compared to other
organizations. It is because they tend to take steps quite fast.

Question: For how long would recognition as a “Start-up” be valid?

Answer: An entity would cease to be a ‘start-up’ upon expiry of:
a) 5 years from the date of its incorporation/ registration, OR
b) If its turnover for any of the financial years has exceeded Rs. 25 crores

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