WHY STARTUP INDIA RECOGNITION IS IMPORTANT

Followers of Mr. Narendra Modi, India’s Hon’ble Prime Minister will be aware of the Initiatives taken by Modi Government since his coming to power at the Center. Even his haters or opposition party followers are not unheard of transitions taking place in the Country since the advent of Modi Government. The list can go long which includes i.e. Make in INDIA, Digital INDIA, Startup INDIA, Swachh Bharat Abhiyan and so on.

In this Article, I will write about what is Startup India Initiative, Merits of Registering under Start-up India and the host of benefits offered to DPIIT recognized Start-ups.

What is STARTUP INDIA Initiative?

Startup India Scheme was launched to encourage the young Entrepreneurs to come up with new Idea’s which can be transformed into scalable business with the assistance of the Government. The aim is to augment the Startup environment in the country and turn Job seekers into Job creators leading to creation of employment and wealth in the Country.

As envisaged, this initiative has had a positive impact on the Entrepreneurial environment of the Country as more and more young Entrepreneurs are coming up with innovative, bright ideas, products, services and technologies that boast of huge potential for future wealth creation for the promoters, investors and the nation. Government is working towards provision of continuous support to Startups in terms of Finance facilitation, networking opportunities with mentors, investors, eased Compliances among others. I will discuss the benefits in detail later in this article.

What is a STARTUP?

According to the definition provided in the Startup India Portal, A Startup is an Entity:

1. Incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.  
2. Having not crossed 10 years from the date of its incorporation or registration.
3. Whose turnover for any of the financial years since incorporation/registration has not exceeded INR 100 Crore.
4. 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.

Getting your Startup recognized by DPIIT!

Startup Recognition is different from registering an Entity on the Startup India Portal. Entity Registration is the first step which is followed by applying for recognition by Department of Industrial Promotion and Policy.

An Entity has to be mindful of the fact that a mere registration on the Startup India Portal does not mean recognition as a Startup. Only an Entity which has been recognized as a Startup by DIPP can avail host of benefits provided by the Government of India.

Now the Question that arises is, how can an entity secure this much emphasized recognition from DIPP?

The answer is that, one of the major motives of the Modi Govt. behind launching this initiative was to bring innovation in the country which would lead to creation of Employment and wealth with the assistance of Govt. Thus, for an Entity to be recognized as a “STARTUP”, it should meet the following criteria’s:

1. Innovative product, process, Service or Technology: the Entity should be working on an Innovative idea resulting into a unique product, process or service or an improvement of existing product, process or service.
2. Generation of Employment: the second qualifying factor is ability of the Startup to generate employment in the country with the innovation in hand. This is where a Job seeker steps into the shoes of Job creator and supports the nation is generating Jobs for qualified, skilled and unskilled masses.
3. Creation of Wealth: creation of wealth is the eventual aim of the govt. which is bound o happen if the above two criteria’s fall into the right place at the right time.

An Entity registered on the Startup India Portal can reap the following benefits even without being recognized by the DIPP:

“Such Entities can apply for various acceleration, incubator/mentorship programmes and other challenges on the Startup Portal along with getting an access to resources like Learning and Development Program, Government Schemes, State Polices for Startups, and pro-bono services.”

BENEFITS AVAILABLE TO A DIPP REGISTERED STARTUP!

The highlights of being recognized by DIPP as a Startup is the host of benefits, an entity can derive and those can prove to be very benefiting during the early phase of any Startup Entity.

Now, these benefits are not only limited to the ones being offered by DPIIT, Ministry of Commerce and Industry but the Companies Act, 2013 has also jumped into the picture to provide a flexible cushion to the Startups under some its stringent provisions.

So, I will divide the benefits under two categories i.e. Startup Hub benefits and Companies Act, 2013 benefits:

Startup India Hub Benefits:

a. Assistance in Patent and IPR applications: To promote awareness and adoption of IPRs by Startups and facilitate them in protecting and commercializing the IPRs, Startup India provides access to high quality Intellectual Property services and resources.

Besides a Patent application filed by a recognized startup is fast-tracked for examinations and disposal. Moreover, such startups are offered monetary benefit in terms of rebate in the Filing of Patent and trademark applications. For Patent applications, recognized startups get 80% of rebate bringing down the cost from Rs. 8000/- to Rs. 1600/-. For trademark applications, rebate is 50% of the Govt. Fees.

b. Self Certification under Labour and Environment Laws: The compliance burden on Startups is huge these days which can hinder their focus on the key areas of the business. Though proper Compliance with the laws is also important at the same time. A recognized Startup is allowed to self-certify their compliance under 6 Labour and 3 Environment laws for a period of 3 to 5 years from the date of incorporation.

These Labour Laws are:

i. Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996 ii. The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979 iii. The Payment of Gratuity Act, 1972 iv. The Contract Labour (Regulation and Abolition) Act, 1970 v. The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 vi. The Employees’ State Insurance Act, 1948

If such startups furnish self-declaration for compliance of the above labour laws for the first year from the date of starting the business, no inspection will happen under the labour laws, wherever applicable.

However, it must be noted that the startups are not exempt from the ambit of compliance of these labour laws. Such relaxation is provided so that startups are encouraged to be self-disciplined and adhere to the rule of law. These measures are being taken with intention to avoid harassment of entrepreneurs by restricting the discretion and arbitrariness.

c. Relaxation in Public Procurement Norms: This serves as a huge benefit to recognized Startups. Startups are being relaxed from meeting the following eligibility criteria’s for any public procurement:

i. Prior Turnover ii. Prior Experience and iii. Earnest Money Deposit

These relaxations are a huge boost for the early stage startups looking to procure Government tenders. Recognized Startups are placed in a strong position vis-a-vis other bidders for bidding for Public procurement and securing the same.

Now DPIIT recognized can get listed as Sellers on the Government of India’s largest e-procurement portal–Government e-Marketplace.

Simply visit gem.gov.in/startup_runway

c. Tax Holiday/Exemptions: Though a recognized Startup do not entail this benefit only on the basis of its recognition, but these startups can make an application for Tax exemption under two Categories i.e. Income Tax exemption under Section 80IAC and Angel Tax exemption under Section 56 of the Income Tax Act, 1961.

Now there are certain Eligibility Criteria’s for availing exemption under either of the two Sections.

Section 80IAC: 1. Only a Private Limited Company and a Limited Liability Partnership are eligible to make an application under this Section.

2. The Startup should have been incorporated after April 01, 2016 but before before April 01, 2021. Hurry Up!

Section 56(2)(viib): Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.

By availing exemption under Section 56, a Startup can issue securities at a price higher than the Fair Market Value.

E) Ease in Winding up of the Startup: Ministry of Corporate Affairs has notified Startups as ‘fast track firms’ enabling them to wind up operations within 90 days vis-a-vis 180 days for other companies. An insolvency professional shall be appointed for the Startup, who shall be in charge of the Ministry of Corporate Affairs has notified Startups as ‘fast track firms’ enabling them to wind up company for liquidating its assets and paying its creditors within 6 months of filing an application in this regard.

COMPANIES ACT 2013 EXEMPTIONS AND RELAXATIONS

i. Exemption from preparation and filing of Cash Flow Statement in their Annual Filings with the ROC.

ii. Startups can issue Employee Stock Options to Promoters and Promoter Group and also to Directors who directly or indirectly hold 10% of voting Rights in the Company. Issuance of Stock Options is prohibited to the said persons for Companies which are not Recognized Startups.

iii. Startups are allowed to issue Sweat Equity Shares upto 50% of the existing Paid-up capital upto 5 years from the date of its incorporation. This Limited is restricted to 15% for a Non-Startup Company.

iv. Startups are allowed to hold 2 Board Meetings in a Financial Year instead of 4 Board Meetings applicable for Non-startup Companies. Startup can hold 1 BM every Half Financial Year.

v. Startups can have their Annual Return under Section 92 signed by a Director, if their is no Company Secretary in the Company. For other Companies, the Annual Return has to be signed by Practicing Company Secretary.

So, An early age Startup with Innovative product, process or service has substantial support from the Government to see out the traction period without incurring bucket of expenses. Angel Tax exemption, IPR Rebates and expedited examination, SIDBI Funding among others are the benefits a Startup can derive for its innovation.

DISCLAIMER: The entire contents of this article have been prepared on the basis of relevant provisions and the information existing at the time of preparation. Although care has been taken to ensure the acccuracy, completeness and reliability of the information provided, the author assumes no liability therefore. Users of this information are expected to refer the relevant law. the information as given in no case shall be construed as a Professional advice or opinion. IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION.