India’s Startup ecosystem, envisioned by Prime Minister Narendra Modi, has become a dynamic force driving exponential growth. Launched on National Startup Day, the Startup India campaign aims to foster entrepreneurship, job creation, and innovation. Entities meeting specific criteria can register as startups, unlocking a plethora of benefits and exemptions.
Prime Minister Narendra Modi during his Independence Day speech on August 15, 2015, quoted “Startups are the engines of exponential growth, manifesting the power of innovation. Several big companies today are startups of yesterday. They were born with the spirit of enterprise and adventure, kept alive, due to hardwork and perseverance and today have become shining beacons of innovation.”
The Startup India campaign is based on a strategy to attract bank financing for new businesses in order to stimulate job creation and entrepreneurship. At the speech from the Red Fort, Narendra Modi ji made the first official announcement of the campaign and introduced a portal https://www.startupindia.gov.in/ to promote the cause. Further, to champion the campaign, he even announced January 16 as the National Start-Up Day in the following year.
In accordance with the recent GSR 127(E) of the Department of Promotion of Industry and Internal Trade, dated February 19, 2019, the following entities shall be regarded as a start-up:-
1. Should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.
2. Entity in existence for upto ten years from the date of its incorporation/registration,
3. The turnover of such entity during any of such financial years has not exceeded Rupees One Hundred Crore, and
4. Such entity works to develop new products, processes, or services that are based on technology or intellectual property and then deploys or commercialises them.
Any entity that desires to avail start-up benefit must get itself registered as a Start-up at https://dpiit.gov.in/ and get Department of Industrial Policy and Promotion (DIPP) recognition after meeting the above-mentioned criteria. Any entity created through the division or reconstruction of an existing company shall not be considered as a “Startup.”
The Companies Act of 2013 does not defines “Start-up,” but for the purposes of the Act, “Start-up” means a private company incorporated under the Companies Act, 2013 and recognised as startup in accordance with the notification issued by the Department of Industrial Policy & Promotion, Ministry of Commerce & Industry.
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BENEFITS OF REGISTERING AS A START-UP
Apart from the numerous financial initiatives available to Start-ups, a number of statutes provides various exemption to them, considering the infancy of Start-ups.
Exemptions to Start-Ups under the Companies Act, 2013
- Treatment of Deposits: The Companies (Acceptance of Deposit) Rules, 2014 have been amended to provide that an amount of Rupees 25 lakh or more received by a Startup by way of a convertible notes (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person shall not be treated as a deposit.
- Applicability of Deposit Provision: The provisions of clauses (a) to (e) of Section 73 shall not apply to a startup company for five years from the date of its incorporation.
- Maximum Limit of Deposit: The upper limit on the acceptance of deposits has been enhanced to 35% of its net worth instead of earlier 25% for Start-ups.
- Employee Stock Option Plan: Start-ups are allowed to issue Employee Stock Options to promoters working as employees.
- Sweat Equity Shares: The limits with regard to sweat equity that can be issued by a start-up company has been raised from 25% of paid-up capital to 50% of paid-up capital.
- Annual Return: The annual return of a Startup company may be signed by the Company Secretary, or where there is no Company Secretary, by the Director of the company.
- Board Meeting: For start-ups, convening at least one meeting of the Board of Directors in each half of a calendar year with a gap between the two meetings of not less than 90 days is sufficient to meet the requirement of section 173(5) of the Act.
Exemptions under the Income Tax Act, 1961 to Start-Ups
- Exemption u/s 80-IAC of Income-tax Act, 1961: A Startup is eligible for getting 100% tax rebate on profits for a block of 3 years in the first 7 years of its operation. The startups recognized under the Startup India policy can now claim tax benefits in 3 out of the first 10 years.
- Exemption under Capital Gains: Long term capital gains (LTCG) will be invested by the Government’s special funds. The investment may go up to Rupees50 lakh and the exemptions will be applied for 3 years.
- Criteria for availing Capital Gains Benefit: Start-Ups may utilize the invested amount for buying assets before the due date of filing the return.
- Reduced tax rate for Manufacturing Company: Finance Minister has also proposed reduced tax rate for the new domestic manufacturing companies setup on or after 1st March, 2016. Reduced tax rate is 25% plus surcharge plus cess.
- Reduced tax rate for Small Company: The domestic companies who hold turnover less than INR 5 Crore in the FY 2014-15 will be liable for 29% tax along with surcharge and other cess.
1. Would a One Person Company (OPC) be eligible to avail benefits under the startup India Initiative?
- Yes, One Person Companies are eligible to avail benefits under the Startup India Initiatives.
2. Can a foreigner enter into partnership under the LLP Act and get that LLP registered with Startup India?
- Yes, a foreign national can enter into partnership under the LLP Act and get that LLP registered on our website. It can even get recognised by the DIPP.
3. What is the time-frame for obtaining certificate of recognition as a ‘Startup’ in case an entity already exists?
- The certificate of recognition is issued typically within 2 working days upon successful submission of the application.
DISCLAMER: – the material and information contained in this document is for education purpose only. You should check the specific provision or take expert advice before making any business legal or any other important decision.
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