WHAT IS A STARTUP?

There is a lot of misconception about what is a startup and how can a startup avail benefits provided
to a startup by the Government of India under the Startup India Action Plan.

As per the Ministry of Corporate Affairs (DIPP) Notification dated April 11, 2018 a Start-Up is:

• An entity incorporated / registered in India such as a Company under the Companies Act,
2013

• Which is at less than 10 years old.

• Which has an annual turnover of less than Rs. 100 crores in any preceding Financial Year. If
the annual turnover has exceeded Rs. 100 in any preceding financial year then it will lose its
startup recognition.

• Which works towards innovation, development or improvement of products or processes or

services, or if it's a scalable business model with a high potential of employment generation
or wealth creation.

All of these features must be present in an entity to be eligible under Startup India Initiative.

BENEFITS AVAILABLE TO STARTUPS IN INDIA:

1. No letter of recommendation from an incubator/industry association shall be required for

either recognition or tax benefits. A letter of recommendation from an incubator was
required for a startup which was very troublesome for some startups and made it available
to only the startups who require it.

2. Startups falling under the list of 36 “white” category industries will not require Environment
clearance under Environment related acts i.e Water and Air Act.
3. A startup can self-certify compliance for a period of 1 year with the Apprenticeship Rules,
1992 of Apprenticeship Act 1961 as allowed by Ministry of Skill Development and
Entrepreneurship.

4. A Startups may self-certify compliance under the 6 Labour Laws from 3 to 5 years (As per the
notification of 12.01.2016 of Ministry of Labour and Employment (MSDE).

5. 50% rebate is available to startups for registration of trademarks.

6. To create a conducive ecosystem for growth of Startups and provide an equal platform to
Startups as of a Micro Small and Medium Scale Enterprises (MSME) in public procurement.

7. On 16th June 2017, Ministry of Corporate Affairs (MCA) notified the sections 55 to 58 of IBC,
2016 related to the Fast Track process and suggested that this process shall apply to Startup
(other than the partnership) as defined by DIPP. After this, startups can wind up their
business within a period of 90 days from making an application which was 180 days earlier.

8. The Startup India Yatra is a platform which aims to help companies (especially in rural areas)
realize their startup dream. The Startup India Yatra aims to reach every corner of India and
help everyone put forward their dream.
 9. Ucchatar Aavishkar Yojana (UAY) was established to promote industry and outcome-
oriented research projects by students. Rs. 475 Crore for 2016-18 has been invested under
UAY and 85 research works from IITs have been approved. Under this scheme, INR 162 crore
has been disbursed for research proposals from IITs of India.

10. The objective of Technology Business Incubators (TBIS) is to promote successful innovation
through incubation and R&D. TBIS will encourage more efficient development and growth of
startups and will help them in competing with dominant organisations in the same industry.

11. Research Parks are set up under the Startup India initiative is to help in innovation through
incubation and joint Research and Development (R&D) which can be established between
academic sector and industry. Research Parks are being setup under Startup India initiative
to promote the less profitable stages of startup and to let it grow in its initial and essential
years of development.

12. Atal Innovation Mission provides guidelines to utilised private sector expertise to set up
incubators which will help the startups grow. Guidelines for organizing annual grand
challenge for solutions to some problems faced by industry and those posed by the complex
regulation of companies have been formulated to ease the initial years for startups.

13. Startup India has launched Learning & Development Module which is an interactive online
learning which will help in educating Startups and aspiring entrepreneurs to enhance their
skills which can be used to innovate and grow. Over more than 2,30,000 people have applied
for this course as of 2018.

14. Fund of Funds for Startups (FFS) set up under Startup India initiative, a 'fund of funds' of Rs.
10,000 crores which is being managed by SIDBI was set up to help the providing the startups
with the funding to fuel the startups and to provide funding to them to carry out their daily
tasks and also expand their portfolio.

TAX BENEFITS

1. Income Tax Exemption

The Finance Act, 2016 has made a provision for Startups to get income tax exemption and is
eligible for getting 100% tax rebate on profit for a period of 3 years. To avail these benefits,
the startups have to get a Certificate of Eligibility from the DIPP, which the regulating body
for startups in India.

2. Exemption from Capital Gains

Under Section 54 EE of the Finance Act, 2016 exemption of capital gain up to Rs. 50 lakhs
arising out of transfer of long-term capital asset invested in a fund listed under the
notification of the Central Government has been provided. Also, Section 54 GB of Income-
Tax Act, 1961 has been amended to grant exemption to startups from tax on capital gains
arising out of sale of residential house or a residential plot of land if the amount of net
consideration is invested in equity shares of eligible Startup for utilising the same for
purchase of assets allowed by the Central Government to obtain exemption under this
section.
3. Exemption from Angel Tax
Section 56(2)(viib) of the Income Tax Act, 1961 provides that angel tax applies to a company
where they have raised money through issue of shares at a price exceeding the fair market
value of those shares. The excess money raised over and above the fair market value will be
treated as income and will be taxed under the Income Tax Act, 1961.
As per the notification of DIPP dated 19th February 2019 a clarification was made in this
context that this section applies to startups as well and said that startups are also included in
the definition of said company under this section.

IMPORTANT NOTE: It is compulsory that a startup must be registered with the DIPP and
under the Startup India Action Plan to obtain the exclusive benefits provided to a startup.
Merely falling under the category of a startup will not grant the entity exemptions available
to a startup.