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What is Startup India Scheme? Research Team | Posted On Monday, March 25,2019, 11:44 AM

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What is Startup India Scheme?



What is Startup India Scheme?

The startup India scheme is an initiative taken up by the Government of India, to encourage the startups of India. The primary objective of this scheme is to promote startups, generation of employment and creation of wealth. The scheme encourages startups and the youth of India, towards entrepreneurship by supporting them through bank financing for job creation. Startup India scheme was launched on 16th January 2016.

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What is Startup India Scheme?

Benefits of Startup India:

Listed below are a few benefits of recognized startups under the startup India scheme:

  • Self Certification: The startup may self certify compliance with respect to six labour laws. In order to self certify compliance, the startup may log on to the ‘Shram Subidha Portal’.
  • Public Procurement Norms: This norm provides exemption on EMD and minimum requirements. The startup can also be listed as a seller through the GeM portal (Government-e-Marketplace).
  • Startup Patent Application: The Startup India scheme helps firms get patents and provides up to 80% rebate while filing patents.
  • Winding Up Company: This scheme provides startups with a fast track exit mode. So, in case the company wants to wind up following a strike, or wants to voluntarily wind up, they can do so within 90 days under the Insolvency and Bankruptcy Code 2016.
  • Tax Exemptions: This scheme benefits startups by providing income tax exemptions for a period of 3 consecutive years and provides exemption on capital gains and investment above fair market value.
  • Avail Funds Through SIBDI: the Ministry of Commerce and Industry, GOI, has entrusted SIBDI with the management of funds for startups with a corpus of Rs 10,000 crores, to support various alternative investment funds (AIFs) for investments in start up businesses.

SEE ALSO:  What is Startup India Scheme?

Start-up Means:

A startup is a young company which is in its early stages of development. They are started by 1-3 founders who focus on developing a product which has good market demand. A startup that can prove its potential will be able to attract venture capital financing. In return, the company has to offer partnership to the venture capitalist, who also gains control and ownership over the company.

A startup is a young company, so the company must be not more than 5 years old and must have annual turnover less than Rs 25 Crore to be eligible for the startup India scheme.

Startup India Action Plan:

Startup India is a campaign started by the Government of India. The main objective of this scheme is to build a strong eco-system for nurturing innovation and start ups in the country. The scheme aims to promote sustainable economic growth and generate huge employment opportunities for youth as well as the unorganised and organised sector. Through this initiative, the government encourages startups to grow through innovation and technology.

With this Action Plan, the Government hopes to accelerate spreading of the Startup movement. The Action Plan is based on the following three pillars:

  • Simplification and Handholding
  • Funding Support and Incentives
  • Industry-Academia Partnership and Incubation

Legal Requirements to Establish a Startup:

For entities, businesses or corporations to be called startups, they must have either of the following legal frameworks:

  • The entity must be registered under the companies act, 2013.
  • The entity must be registered under Section 59 of the partnership act, 1932 as a partnership firm.
  • The entity must be registered under limited liability partnership act, 2002 as a limited liability partnership.

This legal definition means Sole Proprietorship Firms are not under the Startup India scheme. 

Registering your Company:

Registration on the startup portal can be done through the following entities only:

  • Partnership Firm: These are entities which are registered under the partnership firm act. In order to start a partnership firm, the concerned parties must draft a partnership deed which contains the terms and conditions of the partnership firm.
  • Limited Liability Partnership Firm: A Limited liability partnership firm is registered under the LLP Act. Both the partnership firm and LLP are very similar, but LLP has more in common to a private limited company like limited liability protection, transferability and so on.
  • Private Limited Company: A private limited company is a type of privately held small business entity, in which the owner’s liability is limited to their share, the firm is limited to having 50 or less shareholders and the shares are prohibited from being publically traded.

Eligibility for Startup Registration:

The eligibility criterion which must be met for start up registration is as follows:

  • The company which is formed must be a private limited company or a limited liability partnership.
  • The company must be new and not older than 5 years. The total turnover of the company must not exceed Rs 25 crores.
  • The company or firm must be approved under the Department of Industrial Policy and Promotion (DIPP).
  • The firm must have an incubation fund, Angel fund or Private equity fund to receive approval from the DIPP.
  • The firm should have obtained patronage guarantee from the Indian patent and trademark office.
  • For entities to be eligible under startup India scheme, they need a recommendation letter.
  • Under the startup India campaign, capital gains of startups are exempt from income tax.
  • Startups must work on providing innovative products which have high market demand.
  • Angel Fund, Incubation Fund, Accelerators Private Equity Fund, Angel Network must be registered with the Securities and Exchange Board of India.

Tax Benefits Under Startup India Scheme:

Given below are the tax exemptions for eligible start ups:

  • Three years tax exemption: After recognition, a startup may apply for tax exemption under Section 80-IAC of the Income Tax Act. After clearance for tax exemption, the startup can avail a tax holiday for 3 consecutive financial years out of its first 10 years post incorporation.
  • Exemption on tax on long term capital gains: Section 54EE has been introduced in the income tax act in order to benefit the startup India scheme for tax exemption on long term capital gains. This section states that the capital gains up to Rs 50 Lakhs arising out of transfer of long term capital assets invested in a fund notified by the central government are eligible for tax deduction.
  • Tax exemption on investments above fair market value: The government has also levied tax exemption on investments above fair market value for eligible startups.  These investments include investments made by Resident Angel Investors, family or funds which are not registered as Venture Capital Funds.

SEE ALSO: Eligibility for Startup Registration

How to Establish a Startup in India?

The main criteria to establish a startup in India is that the business must be incorporated as a private limited company or a partnership firm or a limited liability partnership. In order to setup the business, the startup must follow normal procedures for enrolment and registration of the business entity in India. The startup business must obtain certain documents like certificate of incorporation or partnership registration, PAN and so on.

The business entity must also be enrolled as a startup on the startup India online portal. The process is easy and hassle free and requires uploading of some documents:

Documents to be Uploaded:

Any one of the following documents may be submitted by the startup in PDF format:

  • A letter of recommendation
  • A letter of support from state /central Government funded incubator.
  • A letter of funding by the central and state government as a part of the scheme that promotes innovation.
  • A recommendation in the format specified by the DIPP.
  • A recommendation, in the format specified by the DIPP, from an incubator established in a post-graduate college in India.
  • A patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.

The Following Steps Must be Followed:

  • Uploading incorporation certificate in case of a partnership firm.
  • Provide a brief summary on products and their innovative features.
  • Provide answers on whether the entity is interested in tax benefits.
  • Self certification of conditions.
  • Self certification that the entity is applying for startup status.

After the application is submitted, a recognition number will be immediately issued to the startup. The certificate of recognition will be released on examination of all documents submitted.

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