Registering in Startup India

12 March 2021

Startup India is a flagship initiative of the Government of India. The campaign was first announced by Prime Minister, Narendra Modi in his speech on August 15, 2015. The Startup India Initiative is a part of the action plan to realise the government’s aim to create a networking platform for accelerators, entrepreneurs, investors, incubators, government agencies and bodies, mentors and newfound companies. It will allow registered participants access to useful tools and resources free of cost and include them in various programs targeted at Startups. In addition to that, the scheme has also provided massive networking opportunities by means of startup festivals held by the Government of India both domestically and internationally.. Through this scheme, the government is looking forward to driving sustainable economic development and enhanced employment opportunities in India.

The numerous benefits of registering as a startup forms a promising narrative of the government to support the entrepreneurial ecosystem, enabling jobs and innovations. 

Benefits of registering in Startup India

  • Exemption under Section 56(2)(vii)(b) of the Income Tax Act, 1961 (Angel Tax Exemption)
    Under the Income Tax Act, 1961, where a company receives any consideration for issue of shares which exceeds the fair market value of such shares, such excess consideration is taxable in the hands of the recipient as income from other sources.

    The exemption that is available to a registered startup is the levy of tax on this  excess consideration. This exemption is particularly beneficial at the stage of an angel/VC round, where the angel or VC invests at the excess of the fair market value.

  • Exemption under Section 80-IAC (Tax Holiday)
    At the initial stage, most of the startups are bootstrapping their organizations out of their hard-earned money. One of the ways to enhance the earnings is to reduce the cost. Government retains 30% of our income in the form of tax which leads to increased cost. A registered startup can avail of an exemption from payment of income tax for three consecutive years out of the first 10 years from the date of its incorporation, given that the total turnover of the startup in the relevant assessment year for which deduction is being claimed must not exceed Rs 25 crore. According to the Union budget 2021-22, only a Private limited company or a Limited Liability Partnership incorporated after April 1, 2022 is eligible for Tax exemption under Section 80IAC.
  • Exemption under Section 54(GB)
    Section 54GB relates to tax on long-term capital gains received upon the sale of a residential property of an individual. The government has exempted individuals from payment of this tax if such long-term capital is invested in a registered startup, after fulfilling certain criteria. Often, specifically during the initial stages where founders are striving to establish proof of concept or consolidate their business idea, there is a vacuum in funds available to them. This particular exemption strives to cushion founders and/or friends and family of founders who intend to leverage residential property to infuse funds in the company. According to Union Budget 2021-22, the existing deadline for such investments was March 2021, which is extended till March 2022.
  • Self-certification under labour and employment laws
    A registered startup is allowed to self-certify their compliance (through the Startup mobile app) under 6 labour laws and three environment laws, including but not limited to The Payment of Gratuity Act, 1972, The Employees’ State Insurance Act, 1948 and The Contract Labour (Regulation and Abolition) Act, 1970The Contract Labour (Regulation and Abolition) Act, 1970. This is allowed for a period of five years from the date of incorporation of the entity. 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.

  • Registration of Intellectual Property
    Given the financial incapability of startups, the fees for registration of Intellectual Property like trademark and patents is subsidised for recognised startups. The startup will bear only the statutory fees and the government will bear all facilitator fees. Additionally, Startups are also provided the facility of expedited examination of patent applications to reduce the time taken in granting patents. Further, recognised startups are eligible for 80% rebate in patent filing fees and 50% rebate in trademark filing fees.
  • Relaxation in public procurement norms
    A DPIIT-registered startup may bid for government contracts with fewer eligibility requirements.

    Public procurement refers to the process by which governments and state-owned enterprises purchase goods and services from the private sector. Government contracts are usually marked by high eligibility requirements and therefore, often only established entities may participate in the bidding process.

  • Easy winding up of the Company
    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 filing an application 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.

Eligibility for registering in Startup India

An entity shall be considered as a startup:

  • Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.
  • Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.
  • Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
  • Provided that an entity is formed by splitting up or reconstruction of an existing business, it shall not be considered a startup

Process of applying for the Startup India certificate

A Startup shall make an online application over the mobile app or portal set up by the Department of Promotion of Industry and Internal Trade (DPIIT).

The application shall be accompanied by

  • A copy of Certificate of Incorporation or Registration, as the case may be,   and
  • A write-up about the nature of business highlighting how it is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.

The DPIIT may, after calling for such documents or information and making such enquiries, as it may deem fit

  • Recognise the eligible entity as Startup; or
  • Reject the application by providing reasons

The Startup India is a one of its kind scheme and it has driven more and more entrepreneurs to start their own businesses, which in turn has resulted into creating a conducive environment for increased employment opportunities and has boosted entrepreneurship.

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