START-UP INDIA SCHEME
The Indian government is taking several initiatives to promote entrepreneurship and innovation in the country. The ‘Startup India’ initiative launched in 2016 is one such initiative that has been instrumental in cultivating a thriving start-up ecosystem.
Some of the key features of Startup India are:
1. DPIIT Recognition: Under this scheme, eligible companies can get registered as startups by the Department for Promotion of Industry and Internal Trade (DPIIT), with numerous benefits including reduced compliance burden, IPR fast-tracking, and more. This has been elaborated in detail below.
2. Startup India Seed Fund Scheme (SISFS): This scheme aims to provide financial aid to startups for the authentication of concepts, development of prototypes, product trials, market-entry, and commercialization.
3. MAARG Mentorship Platform: This platform aims at facilitating intelligent matchmaking between mentors and startups across varied sectors at scale.
4. Startup India Investor Connect: This platform serves as an exclusive platform that connects startups to investors, promotes entrepreneurship, and accelerates engagements across diverse sectors, functions, stages, geographies, and backgrounds.
5. Ranks startups and publicises them: This is an annual capacity-building exercise that seeks to recognize and commend out-performing startups and ecosystem enablers for building innovative products or solutions and supporting scalable enterprises. The awards edition 2023 is now live, aiming to identify, support, and connect top startups within the country.
Since its launch, the scheme has recognized over 50,000 startups and facilitated over 5,000 patent applications and 2,000 trademark registrations.
Eligibility for the Startup India Scheme of DPIIT
To qualify for the benefits of the Startup India Scheme, a startup must:
1. be incorporated as a limited liability partnership or a private limited company or a registered partnership firm in India.
2. not be older than 10 years at the time of application for start-up registration.
3. have annual turnover below INR 1 Billion for every year since its set-up.
4. have a scalable business model with high potential for the development or improvement of a product, process, or service and/or for the creation of wealth and employment.
5. not have been formed by splitting up or reconstructing an existing business.
General Incentives for the Startup India Scheme
The general incentives for the Startup India Scheme of DPIIT include:
1. Self-certification: Startups can self-certify their compliance with six labour and three environmental laws and reduce the regulatory burden.
2. Patent application and IPR protection: Startups can avail of an 80% rebate on patent filing fees and a 50% rebate on trademark filing fees. They can also benefit from expedited examination of patent applications and access to a panel of facilitators and lawyers for IPR-related matters.
3. Easier public procurement norms: Startups can participate in government tenders without prior experience or turnover criteria and get preference in procurement of goods and services by the central government.
4. Easy winding up of company: Startups can wind up their business within 90 days through an insolvency and bankruptcy code, as compared to 180 days for other companies.
Income-tax incentives for the Startup India Scheme
Startups can claim a 100% deduction of profits for any three consecutive years out of ten years from registration as a start-up, subject to certain conditions viz:
1. The startup must be recognised by DPIIT for the purpose of tax exemption.
2. The startup must be incorporated between 1st April 2016 and 31st March 2024.
3. The startup must have a turnover of less than INR 250 million in the year in which tax exemption is claimed
4. The startup must not be engaged in certain specified businesses, such as real estate, banking, insurance, etc.
Income-tax Benefits on Equity Investments from Specified Sources-
Section 56 exemption: Startups can receive investments from angel investors, venture capital funds, and other specified persons without being taxed on the difference between the fair market value and the face value of the shares. The conditions are:
1. The startup must be recognised by DPIIT for the purpose of tax exemption.
2. The aggregate Net Worth (viz. amount of paid-up share capital and share premium) of the entity post the proposed issue of shares is lower or equal to INR 250 million excluding the amount received from certain specified persons.
3. The investor has a net worth of more than INR 20 million or an average income of more than INR 2.5 million in the preceding 3 financial years.
4. The startup has secured a report from a merchant banker specifying the FMV (Fair market value) of the shares in accordance with the prescribed method.
If you have any questions or feedback, please feel free to write to us at info@enmglobal.com.
