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In India, startups are getting increasingly popular. The Government of India, led by Prime Minister Narendra Modi, has launched and pushed the Startup India Scheme to recognize and promote businesses in order to improve the Indian economy and recruit creative entrepreneurs.

What is Startup India Scheme?

Startup India is the government of India’s flagship program, with the goal of creating a robust ecosystem for nurturing innovation and startups in the country. This will result in long-term economic growth and large-scale job creation. Through this project, the government hopes to empower startups to grow through innovation and design.

To bridge the gap and develop partnerships with startups. The Startup India collaborates with a variety of corporations and government institutions. By co-creating programs and challenges on the Startup India portal, any industry or department can solve their business difficulties. Such innovation challenges give corporations and departments a unique opportunity to scout for the best technologies for identified problem statements and focus sectors/areas. These startups carry on with the goal of incentivising startups through market access, cash prizes, incubation/acceleration, mentorship, and other means.

What is a Startup in India?

A startup is a new business that is just getting started. Any new company could now fall into this category. However, there are significant distinctions between a startup and a small firm.

A startup is primarily intended to expand and develop rapidly. The term “startup” refers to a technology-oriented company with a strong growth potential, as opposed to a venture that is just getting off the ground.

Moreover for the purpose of the Startup India scheme, the entity must be recognized by the DIPP. The Department of Industrial Policy & Promotion defines a startup as an entity that fulfills the following conditions: 

  • Has not yet completed a ten-year period from its incorporation or registration.
  • Is the business a private limited company, a partnership firm, or a limited liability partnership?
  • For any of the financial years since incorporation/registration, the yearly turnover has not exceeded Rs. 100 crore.
  • It is a scalable business model with a strong potential for job creation or wealth creation, or it is working toward innovation, development, or enhancement of products, processes, or services
  • It is not founded by dismantling or recreating an existing firm.
  • Private Limited Company (under The Companies Act, 2013) or a Registered Partnership Firm (under The Indian Partnership Act, 1932) or Limited Liability Partnership (under The Limited Liability Partnership Act, 2008)

Eligibility for Startup India Scheme 

To be considered eligible, a “Startup” must: 

  • 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 that is funded (in relation to the project) by GoI as part of any specified scheme to promote innovation; or 
  • be supported by a recommendation (with regard to innovative nature of business) from an incubator established in a post-graduate
  • be funded by an Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI* that supports the innovative nature of the business;
  • 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 related to the nature of the business being promoted.

Eligible Business for Startup Benefit

If a company wants to develop and market the following then it is an eligible business:

  • a new product, service, or process; or
  • a significantly improved existing product, service, or process that will produce or add value for customers or workflow.

The definition of an eligible business does not include mere act of developing the following.

  • non-commercial products, services, or processes; or 
  • undifferentiated products, services, or processes; or
  • products, services, or processes with no or little incremental value for customers or workflow 

Startup India Scheme Benefits

The startups that are recognized under the DPIIT are eligible for the following benefits:

  • Intellectual Property Rights (IPR) benefits 
  • Relaxation in public procurements norms 
  • Self-Certification under  Labour & Environment laws
  • Fund of Funds for Startups (FFS)
  • Faster exit for Startups
  • Section 80 IAC: Income Tax exemption for 3 out of 7 years

Intellectual Property Rights (IPR) benefits 

Startup India Scheme provides access to high-quality intellectual property services and resources to help startups become more aware of and embrace IPRs, as well as protect and commercialise their IPRs.

  • Fast-tracking of Startup Patent Applications: Startup patent applications are examined and dismissed quickly. For well-known startups, the process is substantially faster.
  • Panel of facilitators to assist in IP applications- Facilitators are responsible for offering general advice on different IPRs, as well as information on protecting and promoting IPRs in other countries, when it comes to IP applications. For whatever number of patents, trademarks, or designs, the Central Government pays the entire amount to the facilitators, leaving Startups to pay just the statutory expenses.
  • Rebate on filing of application- Startups receive an 80% discount on patent filing compared to other businesses, reducing the cost from INR 8,000 to INR 1,600. This allows them to save money in their early years. In comparison to other companies, a 50% discount is offered on trademark application, reducing the fee from INR 10,000 to INR 5,000.

Relaxation in public procurements norms 

The Government of India has given its Ministries, Departments, and Public Sector Undertakings permission to ease procurement rules in all areas. Startups are eligible for tax breaks on:

• Turnover in the past

• Previous Work Experience

• Payment of the earnest money deposit

Startups that have been recognized by the DPIIT can now register as sellers on the government’s website. Startups that have been recognized can also become preferred bidders on CPPP platforms, which receive over 200,000 tenders each year.

Self-Certification under  Labour & Environment laws

To relieve Startups of regulatory burdens, allowing them to focus on their core business while keeping compliance expenses low.

  • For a period of 3 to 5 years after incorporation, startups can self-certify their compliance with six labor regulations and three environmental statutes.
  • In respect of 3 Environment laws, units operating under 36 white category industries (as published on the website of Central Pollution Control Board) do not require clearance under 3 Environment related Acts for 3 years. 

Fund of Funds for Startups (FFS)

The government has set up a corpus fund of INR 10,000 crores, which is administered by SIDBI, to offer equity capital support for the creation and growth of innovation-driven firms. The Fund is structured as a Fund of Funds, meaning that the government invests in the capital of SEBI-registered Venture Funds that invest twice as much in startups. Government > SIDBI > Venture Capitals > Startups is the flow of cash.

Tax Exemption Under Section 80 IAC

  • Recognized Startups that have been given an Inter-Ministerial Board Certificate are free from paying income tax for three years out of the seven years from its establishment. Startups incorporated on or after 1st April 2016 can apply for income tax exemption.  
  • Tax Exemption Under Section 56
  • A DPIIT recognized Startup is eligible for exemption from the provisions of section 56(2)(viib) of the Income Tax Act.
  • The Startup has to file a duly signed declaration in Form 2 to DPIIT {as per notification G.S.R. 127 (E)} to claim the exemption from the provisions of Section 56(2)(viib) of the Income Tax Act, 1961.

Faster exit for Startups

Startups have been designated as ‘fast track firms’ by the Ministry of Corporate Affairs, allowing them to close their doors in 90 days as opposed to 180 days for other businesses. Within six months of filing an application in this regard, an insolvency expert will be appointed for the Startup, who will be in charge of liquidation of the company’s assets and paying its creditors.

Startup India Action Plan

The Government of India has announced an Action Plan that targets all parts of the Startup Ecosystem in order to accomplish the initiative’s objectives. The government intends to accelerate the growth of the startup movement with this Action Plan:

  • From existing tier 1 cities to tier 2 and tier 3 cities, including semi-urban and rural areas;
  • From the digital/technology sector to a wide range of industries, including agriculture, manufacturing, social sector, healthcare, education, and so on.

The Action Plan is broken down into the following sections:

  • Funding Support and Incentives
  • Simplification and Guidance
  • Incubation and collaboration between industry and academia

Objectives of the Startup India Scheme

  • To relieve Startups of regulatory burdens, allowing them to focus on their core business while keeping compliance expenses low.
  • To establish a single point of contact for the whole startup ecosystem, allowing for knowledge sharing and funding access.
  • To provide a single platform for Startups to communicate with Government and Regulatory Institutions for all business needs and information sharing among diverse stakeholders.
  • To increase Startups’ understanding and adoption of IPRs, as well as to make it easier for them to protect and commercialize their IPRs by providing high-quality Intellectual Property services and resources, such as fast-track patent application review and fee reductions.
  • To give Startups (in the manufacturing sector) a level playing field with seasoned entrepreneurs/companies in public procurement.
  • To make it easier for startups to close down their businesses
  • To give financial assistance for the creation and expansion of innovative businesses.
  • To promote investments in startups by mobilizing capital profits originating from the sale of capital assets to catalyze entrepreneurship by giving finance to innovators from all walks of life.
  • To encourage the growth of startups and to meet their working finance needs.
  • To stimulate the investment of seed capital in startups
  • To energise the Indian startup ecosystem and give it national and international prominence.
  • To serve as a platform for the promotion of world-class Innovation Hubs, Grand Challenges, Startup enterprises, and other self-employment activities, especially in technology-driven fields.
  • To ensure professional administration of Government-sponsored/funded incubators, the government will develop a policy and framework for the establishment of incubators in public-private partnerships across the country.
  • To boost effective innovation by bolstering incubation and R&D initiatives.
  • Incubation involves collaborative R&D activities between academia and industry to drive effective innovation
  • Bio-entrepreneurship should be encouraged and made easier.
  • Fostering a culture of innovation among students in the fields of science and technology
  • Assisting in the establishment of successful world-class incubators in India

How to Register a Startup Company in India?

Incorporation

Every startup must first register their entity as a private or public company, partnership firm, limited liability partnership. The entity must obtain their certificate of incorporation, partnership agreement or deed, PAN, and other compliance documents.

Register With the Startup India

The entity must register with the Startup India initiative as a Startup. The process of registration is simple and online. Visit the official website and fill the form by entering the details of the entity as directed in the form. Startups can apply for various acceleration, incubator/mentorship programs, and other challenges on the website after creating a profile. Further, they can gain access to resources like the Learning and Development Program, Government Schemes, State Policies for Startups, and pro-bono services.  

DPIIT Recognition

After registering the startup, the entity must obtain a recognition certificate from the Department for Promotion of Industry and Internal Trade (DPIIT). In order to register with the DPIIT, the entity must comply with the recognition conditions. 

This recognition allows startups to take advantage of benefits such as access to high-quality intellectual property services and resources, relaxation of public procurement rules, self-certification under labor and environmental laws, ease of company winding up, access to Fund of Funds, tax exemption for three years, and tax exemption on investments above fair market value.

For a recognition the entity must submit Incorporation/Registration Certificate, Director details, Patent and trademark details, and PAN Number. Additionally, provide proof of concept like pitch deck/ website link/ video (in case of a validation/ early traction/ scaling stage startup) respectively. You need not submit Letter of Recommendations, Sanction Letters, Udyog Aadhar, MSME Certificate, and GST Certificate. 

Obtain a Recognition Number

You will receive a recognition number for your startup as soon as you apply. The certificate of recognition will be granted after all of your documents have been examined, which normally takes two days after you submit your information online.

However, exercise caution when submitting documents. If it is discovered after further verification that the required document was not uploaded, the incorrect document was posted, or a fake document was uploaded, you will be fined 50% of the startup’s paid-up capital, with a minimum fine of Rs. 25,000.

Obtain Funding

Access to capital has been one of the most difficult issues for many entrepreneurs. Entrepreneurs are unable to attract investors due to a lack of experience, security, or established cash flows. Furthermore, many investors are put off by the high-risk character of startups, as a large number fail to take off.

The government has established a fund with an initial capital of INR 2,500 crore and a total corpus of INR 10,000 crore over a four-year period to provide financial assistance (i.e. INR 2,500 crore per year). The Fund is structured as a Fund of Funds, which means it will not invest directly in startups, but will instead contribute to the capital of SEBI-registered Venture Funds.

Obtain Certificate Under the Employment and Labour Laws

Startups can lower their compliance costs by self-certifying under labor and environmental standards. Self-certification is available to help companies decrease regulatory load and focus on their core business. Startups have three to five years from the date of formation to self-certify their compliance with six labor laws and three environmental statutes.

Units operating under the 36 white category industries listed on the Central Pollution Control Board’s website do not require permission under three environmental statutes for three years.

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