eMerg India

Startup India Policy – Update One

Government of India in continuation to the Startup Initiative (read here on announcements to date), as a part of the 19 points Action Plan to empower startups to grow through innovation and design, has now issued a notification dated 17 February 2016 (F. No. 5(91)/2015-BE. I).

The notification defines the term startup and prescribes the procedure for obtaining tax benefits.

According to the Startup Guideline issued by Government of India, Ministry of Commerce and Industry an entity shall mean a Private Limited Company (under The Companies Act, 2013) or a Registered Partnership Firm (under The Indian Partnership Act, 1932) or Limited Liability Partnership (under The Limited Liability Partnership Act, 2008).

Definition of Startup

A Private Limited Company, Partnership firm, LLP –

  • up to 5 years from the date of its incorporation/registration
  • turnover for any of the financial years is not more than INR 250 million and
  • entity working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property or entity is aiming to significantly develop or improve existing product or service or process that will create or add value for customers or workflow.

The above conditions are cumulative and are to be satisfied.

The mere act of developing products or services or processes which do not have potential for commercialization, or undifferentiated products or services or processes, or products or services or processes with no or limited incremental value for customers or workflow shall not be categorized as a startup.

Procedure and recognising a startup

  • Application has to be made by the entity using the mobile app/portal of the Department of Industrial Policy and Promotion (DIPP).
  • Application to be accompanied by any of the following documents:
    • a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator established in a post-graduate college in India or
    • letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or
    • letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or
    • a letter of funding of not less than 20 per cent in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business: or
    • a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or
    • a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.
  • In order to obtain tax benefits a startup so identified after registration is required to obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification consisting of:
    • Joint Secretary, Department of Industrial Policy and Promotion,
    • Representative of Department of Science and Technology, and
    • Representative of Department of Biotechnology.
Upon uploading of the above said documents real-time recognition number will be issued to the startup.

Penalty for false registration:

If the application is found to be obtained, without uploading the document or uploading any other document or a forged document, the concerned applicant shall be liable to a fine which shall be fifty per cent of paid up capital of the startup but shall not be less than Rs. 25,000/- (Rupees Twenty Five Thousand only).

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