In this article we shall take a look at the various aspects of the recently announced Startup India Scheme and how startups can benefit from them.
Amongst all emerging economies around the world, none has captured the spirit of entrepreneurship better than India. India has the most number of start-ups incorporated per year amidst developing economies. This is partly due to the general enterprising spirit of the population and partly due to the proactive initiative by the government to promote indigenous production through the start-up culture.
The government has announced several schemes and policies that will help startups overcome basic and common problems plaguing this class of businesses such as funding and infrastructure. These are all under one umbrella scheme called the ‘Startup India Scheme’. But what is this startup India scheme and what are the challenges it mitigates for a startup? In this article we shall take a look at some of these initiatives in detail to outline the benefits a startup can enjoy in the current economic atmosphere.
Who can apply for the Scheme?
Under the Startup India Scheme, eligible companies can get recognised as Startups by Department for Promotion of Industry and Internal Trade (DPIIT), to access a host of tax benefits, easier compliance, fast-tracking IPR process and much more. In this article, you will learn about eligibility and benefits under this scheme.
To be eligible for the Startup India scheme, a company must meet the following criteria to be recognised or considered eligible for DPIIT recognition.
- Company Age – The period of existence and operations of the company should not be exceeding more than 10 years from the Date of Incorporation.
- Types of Company – The company should be incorporated as a Private Limited Company, Partnership Firm or Limited Liability Company.
- Annual Turnover – Should have an annual turnover not more than Rs.100 Crore for any of the financial years since its Incorporation.
- Original Entity – The entity should not be formed by splitting up or reconstructing an already existing business.
- Innovative & Scalable – Should work towards the development of a product, process or service and/or should have high potential to scale up the creation of wealth and employment.
Benefits under the Startup India Initiative
A DPIIT registered startup business can avail huge benefits from this scheme. Till date, 26,685 startups have been recognised to reap the benefits such as self-certification, tax exemptions, funding, Fast-track IPR, Ease of winding up the company and much more. Let us take a look at them one by one.
Self Certification
Startups registered under the Startup India scheme shall be allowed to self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure. In the case of labour laws, no inspections will be conducted for 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 or CPCB) would be able to self-certify compliance and only random checks would be carried out in such cases
The entire objective of self certification is to reduce the regulatory burden on Startups, thereby allowing them to focus on their core business and keep compliance managed at a low cost.
Startups that are within 5 years of incorporation are eligible to perform self-certification as detailed above.
Startup Patent Application & IPR Application
The main agenda of promoting startups in India is to catalyse innovation in various fields and sectors. And nothing is more important to companies focused on innovation than protection of their intellectual property rights. It is with this in mind that certain initiatives have been announced in the field of Intellectual Property Rights.
Fast-tracking of Startup India Patent Applications: Patent applications filed by startups shall be fast-tracked for the examination so that their value can be realised 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 empanelled 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 80 IAC
Eligible startups can be exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation.
The eligibility criteria for tax exemption is as follows:
- The entity should be a DPIIT recognised 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.
- Section 56 Exemption
Benefits of this exemption:
- Startups registered under this scheme can claim exemption under Section 56(2)(VIIB) of Income Tax Act.
- Investments into eligible startups by listed companies with a net worth of more than ₹100 Crore or turnover more than ₹250 Crore shall be exempt under Section 56 (2) VIIB of 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 ₹250 Crore, shall be exempt under Section 56(2)(VIIB) of Income Tax Act.
- The shares received by eligible startups shall be exempt up to an aggregate limit of ₹25 Crore.
The eligibility criteria is as follows:
- The company should be a private limited company.
- The company should be a DPIIT recognised startup.
- The company has not invested in specified asset classes as prescribed under the scheme.
- The startup should not invest in immovable property, transport vehicles above ₹10 lakh, loans and advances, capital contribution to other entities, except in the ordinary course of business.
Easy Winding up of Company
Any recognised startup under this initiative, have an opportunity to wind up the business if they want.
This will encourage entrepreneurs to experiment with new and innovative ideas, without having to face complex and long-drawn exit processes where their capital becomes interminably stuck in the event of business failure.
Benefits:
- As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, or those meeting certain income specified criteria* can be wound up within 90 days of applying for insolvency.
- An insolvency professional shall be appointed for the Startup, who shall thereafter be in charge of the company (the promoters and management shall no longer run the company) including liquidation of its assets and paying its creditors within six months of such appointment.
- Upon appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors following the distribution waterfall set out in the IBC. This process will respect the concept of limited liability.
Conclusion
As the adage goes, there is no such thing as a free meal, so is the case with these benefit schemes. All the advantages come at the price of additional regulatory paperwork and strict maintenance records so as to evidence its eligibility under the guiding criteria of the scheme. And this paperwork can get technical and tedious. So it is always advisable to seek the help of an experience professional who understands the paperwork and the technical nuances of the process. If you have any such queries or require assistance with any regulatory work, get in touch with us and we will ensure you receive the professional help you need.
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