Startup India Scheme
The Startup India Scheme is an initiative of the Government of India in 2016. The primary objective of Startup India is the promotion of startups, generation of employment, and wealth creation. The Startup India has initiated several programs for building a robust startup ecosystem and transforming India into a country of job creators instead of job seekers. These programs are managed by the Department for Industrial Policy and Promotion (DPIIT). Government of India launched the ambitious ‘Startup India’ Movement to boost digital entrepreneurship at the grassroots level and to develop the Indian economy and attract talented entrepreneurs.
A startup is a newly established business started by one or a group of individuals. What differentiates it from other new businesses is that a startup offers a new product or service that is not being given elsewhere in the same way. The keyword is innovation. The business either develops a new product/ service or redevelops a current product/service into something value addition.
Definition of “Startup”
Any company who fall into below list of category will be called as “Startup” and eligible to be recognised by the DPIIT to avail the benefits from the Government of India.
Age of the Company – The Date of Incorporation should not exceed 10 years.
Type of Company – Should have been incorporated as a Private Limited Company under the Companies Act, 2013 or a Registered Partnership Firm under the Partnership Firm Act, 1932 or a Limited Liability Partnership under Limited Liability Partnership Act, 2008.
Annual Turnover – Should not exceed Rs.100 crore for any of the financial years since its incorporation.
Original Entity – The Company or Entity should have been formed originally by the promoters and should not have been formed by splitting up or reconstructing an existing business.
Innovative & Scalable – Should have a plan for development or improvement of a product, process, or service and/or have a scalable business model with high potential for the creation of wealth & employment.
Commercialize – Should have the potential for commercialization in an existing market or by creating a new market.
Steps to Register Your Startup with Startup India
Step 1: Incorporate your Business as a Private Limited Company or a Partnership firm or a Limited Liability Partnership. You have to follow all the normal procedures for registration of any business like obtaining the Certificate of Incorporation/Partnership registration, PAN, and other required compliances.
Step 2: Register with Startup India by creating your profile by providing all your necessary information with details of your new developed products or services and/or enhancement of existing products or services and its benefits at public at large. Once, your profile is created on the website, startups can apply for various acceleration, incubator/mentorship programmes and other challenges on the website along with getting access to resources like Learning and Development Program, Government Schemes, State Polices for Startups and pro-bono services.
Step 3: Get DPIIT Recognition
The next step after creating the profile on the Startup India Website is to avail Department for Promotion of Industry and Internal Trade (DPIIT) Recognition. This recognition helps the startups to avail benefits like access to high-quality intellectual property services and resources, relaxation in public procurement norms, self-certification under labour and environment laws, easy winding of company, access to Fund of Funds, tax exemption for 3 consecutive years and tax exemption on investment above fair market value.
Step 4: Recognition Application
The ‘Recognition Application Detail’ page opens. On this page click on ‘View Details’ under the Registration Details section, Fill up the ‘Startup Recognition Form’ and click on ‘Submit’.
Step 5: Documents for Registration
i) Incorporation/Registration Certificate (CIN) of your startup
ii) Details of the Directors
iii) Proof of concept like presentation/pitch deck/website link/video (in case of a validation/ early traction/scaling stage startup)
iv) Patent and trademark details (Optional)
v) PAN Number
Step 6: Recognition Number
That’s it! On applying you will immediately get a recognition number for your startup. The certificate of recognition will be issued after the examination of all your documents which is usually done in 2 days after submitting the details online. However, be careful while uploading the documents. If on subsequent verification, it is found to be obtained that the required document is not uploaded/wrong document uploaded or a forged document has been uploaded then you shall be liable to a fine of 50% of your paid-up capital of the startup with a minimum fine of Rs. 25,000.
Step 7: Other Areas and benefits
Patents, trademarks and/or design registration, EMD fees waiver off: If you need a patent for your innovation or a trademark for your business, you can easily approach any from the list of facilitators issued by the government. You will need to bear only the statutory fees thus getting an 80% reduction in fees. Exemptions are available from the requirement of earnest money deposit (EMD) in government tenders. Support to be given to R&D Institutions by providing assistance up to 60% of the project cost.
Funding: One of the key challenges faced by many startups has been accessing finance. Due to lack of experience, security or existing cash flows, entrepreneurs fail to attract investors. Besides, the high-risk nature of startups, as a significant percentage fail to take off, puts off many investors.
In order to provide funding support, the Government has set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period of 4 years (i.e. INR 2,500 crore per year). The Fund is in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds. There are various types of funds available like Crowd Funding, Angel Funding, Venture Capital, Govt. Funds, Business Incubators & Accelerators Funding.
Self Certification under Employment and Labour Laws: Startups can self certify under labour laws and environment laws so that their compliance costs are reduced. Self-certification is provided to reduce regulatory burden thereby allowing them to focus on their core business. Startups are allowed to self-certify their compliances under six labour laws and three environment laws for a period of 3 to 5 years from the date of incorporation.
Units operating under 36 white category industries as published on the website of the Central Pollution Control Board do not require clearance under 3 environment-related Acts for 3 years.
Tax Exemption: Startups are exempted from income tax for 3 years. But to avail these benefits, they must be certified by the Inter-Ministerial Board
(IMB). The Startups incorporated on or after 1st April 2016 can apply for the income tax exemption.
Easy Winding up of Company: This is to ease the shut down or wind up operations of the startups. This will allow the entrepreneurs to reallocate capital and resources to more productive avenues faster. To encourage entrepreneurs to experiment with new and innovative ideas without facing complex exit processes where their capital stuck in case of business failure.
As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, it can be wound up in 90 days of filing the application for insolvency. An insolvency professional can be appointed for the Startup who can be in charge of the company including liquidation of its assets and paying its creditors within six months of such appointment. It is responsibility of the insolvency professional to the closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBC.