Eligible Startups Under The Startup India Program: Exemptions And Benefits Available

Author: - Simran Pradhan

3rd Year B.A. LL.B
Symbiosis Law School, Hyderabad

1. INTRODUCTION

One of the economic surveys that were conducted in India showed that in the year 2015- 2016, the numbers of startups existing in India amount to more than the 19000 mark[1]. For a country like that of India this figure much below what could have been called sufficient. So, in the year 2016, the government of India under the leadership of the PM Narendra Damodar Modi launched one of its most ambitious programs “Startup India Program” to encourage new startups in India, which would eventually help in increasing the number of entrepreneurs in India.  The program aimed at encouraging the banks to provide financial aids to the startups, to de-complex the incorporation process for the startups and to provide various benefits and exemptions to the startups so that they can strengthen their roots in their business ecosystem.[2] In total there are 11 benefits which are provided to the startups under the startup India program, but  to enjoy these benefits the company, partnership, or the business had to prove their eligibility of being an ‘eligible startup’. More about this will be discussed in the latter part of this present write up.[3]

2. WHATS IS A STARTUP?

Before trying to understand the eligibility criteria of the startups, let’s first try to understand the meaning of the term startups. If you have a belief that the startup is a small business which is in search of the bank financing to flourish its business then let me tell you that’s not the meaning of startups. Startups according to the startup India program is a sapling venture which is at its very initial stage of development. And almost any form of young business can come under this categorization. But as discussed in the above, startups are not equivalent to the small business.[4] In the case of startups, the designing is done in such a way that can facilitate the rapid growth of that business. Mostly the term startups are associated with the “technology-oriented company”, which possesses a very high potential of growth rate.[5]

The definition of the startups as-under the “startup India action plan” is expressed under the “G.S.R notification 127(E)”. If all the essentials as mentioned under the definitions are fulfilled then that startup becomes capable of applying for government recognition under the startup India program. And then as a result of achieving government recognition, the venture will now become eligible to enjoy all benefits and exemptions of the program that has been explained in the latter part of this paper.[6]

3. ELIGIBILITY

For a new venture or business to become a startup, it has to fulfil certain mandatory conditions which are as mentioned hereunder: –

  1. For a business to be a startup it has to be a private limited company[7]/ registered partnership firm[8]/ LLP (limited liability partnership)[9].
  2. For a business to qualify as a startup it has to have a registration date which should be less than 10 years.
  3. For a business to qualify as a startup has to have a turnover which is less than 25 crore for all financial years of the company from the date of its registration. (this limit was later in 2019 increased to 100 crores). [10]
  4. The business should possess a model/design which shows its potential of creating and generating employment and wealth. Further, the venture has to ensure that it would act for the innovation, improvement and development of the commodity/product/services.
  5. The business venture in question shall not be a product of divorce of any prior existing business venture.[11]

 

  • Benefits & Exemptions[12]

 

Capital benefits, (80% discount on the cost on the patent will be provided)

Under the Startup India program, the ventures which are recognized as a startup will be provided with a financial benefit by the government under which 80% of discount will be provided to the companies who are filing for patents. Further, they will be provided with the government’s assistance to get their patents. By the help of this benefit, the complexity of getting security under the IPR has been simplified by the government.

 

  • Benefits of registration

 

On the 1st of April, 2016, a mobile app together with a portal was launched by the GOI to facilitate the registration procedures under the startup India program which can be completed within a single day. This helped in creating a single contact location for resolving all “registration-related questions” at the “startup India hub”. Moreover, a singular point of virtual clearance has been created to clear, approve and register the concerned applications or papers, etc. this is said to be an additional benefit because it has created a similar and more flexible process of registration.

 

  • Tax-related benefits

 

It’s a special exemption benefit provided to the startups under this said program. This is available for the initial 3 years from the date of registration. However, not all startups can avail the benefits of tax exemptions, and to do so the companies have to fulfil certain eligibility conciliations.

Eligibility Conditions for Availing the Tax Exemption are as follow: –

  1. The venture has to fulfil all the aforementioned conditions of an eligible startup.
  2. It should have been recognized as a startup.
  3. The business that is registered as LLP or private limited is only eligible for availing the benefits of exemption u/s 80IAC.
  4. The registration date of the startup should fall between 1st April 2016 & 1st April 2021.[13]
  5. The venture has to receive an eligibility certificate from the Inter-Ministerial Board.

 

  • Other benefits

 

  1. They will be given priority in the tenders issued by the government.
  2. Manufacturing sector startups don’t have to fulfil the “experience” conditioning or “turnover”. It’s accomplished without providing any sought of exemption in the “quality standards or technical parameters”.
  3. The startups are provided with the guaranteed funds which are provided from the “National Credit Guarantee Trust Company or SIDBI over 4 years”.
  4. No labour inspection will be done for the period of the 1st three years of the startup’s registration for violation of the labour laws. But this benefit collapses under the situation where a serious violation of labour laws is found to have taken place.
  5. The startups are not required to go through any environment-related clearance, compliance of environmental law is needed only after the post-self clearance/clarification
  6. The process of closure under this program has been made a lot quicker (90 days).

 

CONCLUSION

In this, the author has explained about the startup India program, an initiative of the Indian government taken in the year 2016. In the year 2019, certain changes were made to further simplify the earlier existing processes of availing the government’s recognition of being a startup. This paper mainly focuses on the meaning & definition of the term startups and what are the conditions for becoming eligible to become a startup under the startup India program, then the author explained the benefits and exemption which are enjoyed by the startups. The author here has very briefly explained about the tax exemptions.

 

References:

[1] Benefits of the Startup India Program, CLEARTAX

, https://cleartax.in/s/benefits-startup-india-program/

[2] Startup India: Eligibility, Tax Exemptions and Incentives, CLEARTAX , https://cleartax.in/s/startup-india-tax-exemptions-eligibility/

[3] Supra note 1.

[4] Ibid.

[5] Ibid.

[6] Vidhi Doshi, Eligibility, Tax Exemptions & Incentives To Startup, TAXGURU, Https://Taxguru.In/Income-Tax/Eligibility-Tax-Exemptions-Incentives-Startup.Html.

[7] Defined under the companies act 2013

[8] Partnership act 1932, sec. 59

[9] Limited Liability Partnership Act, 2008.

[10] Supra note 6.

[11] Tax Incentives & Exemptions To Startups In India, RAZORPAY, https://razorpay.com/learn/tax-incentives-exemptions-startup-india-2019/

[12] Supra 1, also see supra 2.

[13] Sunil Malik, Startup In India Eligibility And Benefits & Angel Tax Exemption (After Union Budget 2020), Taxguru , Https://Taxguru.In/Income-Tax/Startup-India-Eligibility-Benefits-Angel-Tax-Exemption.Html

 

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