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Startup India Initiative: A detailed discussion about Start up and DPIIT

At this time when I am writing this article, India is currently the third-largest startup ecosystem in the world.

The Indian startup ecosystem is home to approximately 38,815 active startups which is inclusive of both funded and bootstrapped startups. As the launch of new startups pushes the culture of entrepreneurship forward, one cannot ignore the investors either India is also home to over 5,694 active investors.

For Indian startups, the funding winter this year has begun in the middle of sweltering summers. While the ecosystem has come a long way since 2014, going through the golden period of funding between 2015 and 2017, after a couple of years of slow but mature growth, 2020 has been a year of decline.

startups

With the growing uncertainty regarding the surge of Covid-19 cases in India in the past month, the adoption of internet-based solutions in the country is expected to keep growing, and this will also improve investor confidence in 2021 and perhaps beyond.

You may like: 11 Benefits of Startup India Program That Businesses Can Avail

This can be best ascertained from the fact that so far in 2021, nine Indian startups have touched a $1 Billion+ valuation as opposed to the six-year annual average (2015 to 2020) of six unicorns.

At this pace, India is likely to see 100 unicorns by 2023, much earlier than the earlier projection of 2025.

[box type=”info” align=”aligncenter” class=”” width=””]The popularity of fintech startups among investors is increasing significantly across all stages. In addition to the ongoing bull run in digital lending and insurance tech, new models such as BNPL (Buy Now Pay Later), neo banking, SME financial inclusion are further solidifying the position of fintech startups among Indian investors.[/box]

What is Startup?

A startup company (startup or start-up) is an entrepreneurial venture which is typically an emerging, fast-growing business that aims to solve an unmet need by developing a viable business model around an innovative product, service, process, or platform. A startup is usually a company designed to effectively develop and validate a scalable business model.

What is Startup India?

Startup India is a flagship initiative of the Government of India, intended to build a strong ecosystem that is conducive for the growth of startup businesses, drive sustainable economic growth, and generate large-scale employment opportunities. The Government through this initiative aims to empower Startups to grow through innovation and design.

How to Know is your Company eligible for DPIIT Startup recognition?

Your company must meet the following criteria to be considered eligible for DPIIT startup recognition.

DIPP

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  • Company Age: Period of existence and operations should not be exceeding 10 years from the Date of Incorporation
  • Company Type: Incorporated as a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership
  • Annual Turnover: Should have an annual turnover not exceeding Rs. 100 crores for any of the financial years since its Incorporation. 
  • Original Entity: Entity should not have been formed by splitting up or reconstructing an already existing business
  • Innovative & Scalable: Should work towards development or improvement of a product, process, or service and/or have a scalable business model with high potential for the creation of wealth & employment

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Benefits of DPIIT Registration

The DPIIT recognized startups can get the following benefits under the Startup India Initiative

Startup India benefits

Self-Certification

  • Startups shall be allowed to self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure.
    • Labour Laws:
      • The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
      • The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
      • The Payment of Gratuity Act, 1972
      • The Contract Labour (Regulation and Abolition) Act, 1970
      • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952   
      • The Employees’ State Insurance Act, 1948
    • Environment Laws:
      • The Water (Prevention & Control of Pollution) Act, 1974
      • The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
      • The Air (Prevention & Control of Pollution) Act, 1981
  • In the case of labour laws, no inspections will be conducted for a period of 5 years. Startups may be inspected only on receipt of a credible and verifiable complaint of violation, filed in writing, and approved by at least one level senior to the inspecting officer.
  • In the case of environment laws, startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases

Startup IPR and Patent Registration

  • Fast-tracking of Startup Patent Applications: Patent applications filed by startups shall be fast-tracked for an examination so that their value can be realized sooner.
  • A panel of facilitators to assist in the filing of IP applications: For effective implementation of the scheme, a panel of “facilitators” shall be impaneled by the Controller General of Patents, Designs, and Trademarks (CGPDTM), who shall also regulate their conduct and functions. Facilitators will be responsible for providing general advisory on different intellectual property as well as information on protecting and promoting intellectual property in other countries.
  • Government to bear facilitation cost: Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks, or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.
  • Rebate on the filing of application: Startups shall be provided with an 80% rebate in filing of patents vis-a-vis other companies. This will help them pare costs in the crucial formative years

Tax Exemption under Section 80IAC

Eligible startups can be exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation. 

Click here for Notification

Who can claim Tax Exemption under section 80IAC?

The Startup that follows the conditions given below will be eligible for the exemption.

  • The entity should be a DPIIT recognized startup.
  • Only Private Limited Companies or Limited Liability Partnerships are eligible for tax exemption under Section 80IAC
  • The startup should have been incorporated after 1st April 2016

Tax Exemption under Section 56

  • Exemption under Section 56(2)(VIIB) of the Income Tax Act
  • Investments into eligible startups by listed companies with a net worth of more than INR 100 Crore or turnover more than INR 250 Crore shall be exempt under Section 56 (2) VIIB of the Income Tax Act
  • Investments into eligible Startups by Accredited Investors, Non-Residents, AIFs (Category I), & listed companies with a net worth more than 100 crores or turnover more than INR 250 Crore, shall be exempt under Section 56(2)(VIIB) of Income Tax Act
  • Consideration of shares received by eligible startups shall be exempt up to an aggregate limit of INR 25 Crore

Who can claim Tax Exemption under section 56?

The Startup that follows the conditions given below will be eligible for the exemption.

  • A private limited company
  • A DPIIT recognized startup. 
  • Not Investing in specified asset classes
  • The startup should not be investing in immovable property, transport vehicles above INR 10 Lakh, Loans and advances, capital contribution to other entities, except in the ordinary course of business

Easier Public Procurement Norms

  • Opportunity to list your product on Government e-Marketplace: Government e-Marketplace (GeM) is an online procurement platform and the largest marketplace for Government Departments to procure products and services. DPIIT Recognized Startups can register on GeM as sellers and sell their products and services directly to Government entities. This is a great opportunity for startups to work on trial orders with the Government.
  • Exemption from Prior Experience/Turnover: In order to promote startups, the Government shall exempt Startups in the manufacturing sector from the criteria of “prior experience/ turnover” without any compromise on the stated quality standards or technical parameters. The Startups will also have to demonstrate a requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India. Click here to refer to the notification
  • EMD Exemption: DPIIT recognized startups have been exempted from submitting Earnest Money Deposit (EMD) or bid security while filling government tenders. Click here to refer to the notification.

Vikas TaxClue
Vikas Sharmahttp://taxclue.in
A writer by passion. Reading and traveling in my free time enhances my creativity in work. I enjoy exploring my creative side, and so I keep myself engaged in learning new skills.

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