START-UP

A START-UP is a newly established business, usually small, started by

1 or a group of individuals. What differentiates it from other new
businesses is that a start-up offers a new product or service that is not
being given elsewhere in the same way.

Objective

To reduce the regulatory burden on Start-ups, thereby allowing them to

focus on their core business and keep compliance costs low.

Department for Promotion of Industry and Internal Trade  (DPIIT)

The Department for Promotion of Industry and Internal

Trade (DPIIT) is a central government department under the Ministry of
Commerce and Industry in India.

Under the Startup India initiative, eligible companies can get recognised
as Start-ups by DPIIT, in order to access a host of tax benefits, easier
compliance & more.

AN ENTITY SHALL BE CONSIDERED AS A START-UP:

1. Up to a period of ten years from the date of incorporation/

registration, if it is incorporated as a private limited company (as
defined in the Companies Act, 2013) or registered as a partnership
firm (registered under section 59 of the Partnership Act, 1932) or a

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 limited liability partnership (under the Limited Liability Partnership
Act, 2008) in India.

2. Turnover of the entity for any of the financial years since

incorporation/ registration has not exceeded one hundred crore
rupees.

3. Entity is 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. Provided that an entity formed by splitting up or
reconstruction of an existing business shall not be considered a
‘Start-up’.

4. An entity shall cease to be a Start-up on completion of ten years

from the date of its incorporation/ registration or if its turnover for
any previous year exceeds one hundred crore rupees.

5. “Act” means the Income-tax Act, 1961;

6. It is not formed by splitting up or reconstructing a business already

in existence.

BENEFITS

 Start-up shall be allowed to be self-certify compliance for 6 Labour

Laws and 3 Environmental Laws through a simple online
procedure.

 In the case of labour laws, no inspections will be conducted for a

period of 5 years. Start-up may be inspected only on receipt of
credible and verifiable complaint of violation, filed in writing and
approved by at least one level senior to the inspecting officer.

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  In the case of environment laws, start-up which fall under the
‘white category’ (as defined by the Central Pollution Control Board
(CPCB)) would be able to self-certify compliance and only random
checks would be carried out in such cases.
 Start-ups shall be allowed to self-certify compliance (through the
Start-up mobile app) with 9 labour and 3 environment laws.

Labour Laws:

 The Building and Other Constructions Workers’ (Regulation of

Employment & Conditions of Service) Act, 1996.
 The Inter-State Migrant Workmen (Regulation of Employment &
Conditions of Service) Act, 1979.
 The Payment of Gratuity Act, 1972.
 The Contract Labour (Regulation and Abolition) Act, 1970
 The Employees’ Provident Funds and Miscellaneous Provisions
Act, 1952 .
 The Employees’ State Insurance Act, 1948

Environment Laws:

 The Water (Prevention & Control of Pollution) Act, 1974.

 The Water (Prevention & Control of Pollution) Cess (Amendment)
Act, 2003.
 The Air (Prevention & Control of Pollution) Act, 1981

No tax for the first three years

 The Government of India offers 100% tax exemption to the start-

ups for the first three years.

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  In the Union Budget 2022 the Start-up incorporated between April
1, 2016, till 31st March 2021 were eligible for this scheme. The
Budget 2022 has extended the eligibility to 31st March 2022.

 Such start-ups will be eligible for getting 100% tax rebate on profit
for a period of three years in a block of seven years provided that
annual turnover does not exceed Rs.25 crores in any financial
year.

 This will help the start-ups to meet their working capital

requirements during their initial years of operation.

 This gives new entrepreneurs time to build a business with added

budget, which they otherwise would have to pay as taxes.

 However, only companies that are registered with Department of

Industrial Policy and Promotion (DIPP) are eligible to claim this
benefit.

20% tax exemption on capital gain

 The capital gain tax is the income tax companies have to pay on
the profits earned from company stocks. Even though the earnings
from stocks, shares, and bonds are taxable, start-ups get a tax
benefit of 20% on the capital gain.

No tax on ‘Angel Investment’

 A start-up often fails to earn the trust of new investors as they have
no track-record, which makes it harder for them to raise funds.
 Angel investors can help them in such a scenario. They negotiate
the terms and interest’s payable by the entrepreneurs. The
Government of India has announced that ‘angel investments’ are
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 tax-free. Hence, start-ups can now collect the funds they require
from angel investors without having to worry about added taxation.

Presumptive tax benefit

 A start-up that has a turnover of under INR 2 crore is eligible to

enjoy the benefits of the ‘Presumptive Tax Scheme.
 Under this, the company is not required to maintain any book of
account, which relieves the pressure on entrepreneurs.
 It leaves more funds in their account to innovate and develop
newer ideas.

Reduction in cost

 The government also provides lists of facilitators of patents and

trademarks.
 They will provide high-quality Intellectual Property Right Services
including fast examination of patents at lower fees.
 The government will bear all facilitator fees and the start-up will
bear only the statutory fees. They will enjoy 80% reduction in the
cost of filing patents.

No time-consuming compliances

Various compliances have been simplified for startups to save time and
money.

Easy exit

In case of exit – A startup can close its business within 90 days from the
date of application of winding up.

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Opportunity to list the Applicant’s product on Government e-
Marketplace:

 Government e Marketplace (GeM) is an online procurement

platform and the largest marketplace for Government Departments
to procure products and services.
 DPIIT Recognized Start-ups can register on GeM as sellers and
sell their products and services directly to Government entities.
This is a great opportunity for start-ups to work on trial orders with
the Government.

Exemption from Prior Experience/Turnover: 

 In order to promote start-ups, the Government shall exempt Start-

ups in the manufacturing sector from the criteria of “prior
experience/ turnover” without any compromise on the stated
quality standards or technical parameters.
 The Start-ups will also have to demonstrate requisite capability to
execute the project as per the requirements and should have their
own manufacturing facility in India. 

EMD Exemption: 

 DPIIT recognised start-ups have been exempted from submitting

Earnest Money Deposit (EMD) or bid security while filling
government tenders. 

Exemption under Section 56(2)(VIIB) of Income Tax Act .

Where By virtue of SECTION 56(2)(VIIB) OF THE ACT, it states that,

where a company, not being a company in which the public are
substantially interested, receives, in any previous year, from any person
being a resident, any consideration for issue of shares that exceeds the
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face value of such shares, the aggregate consideration received for
such shares as exceeds the fair market value of the shares shall be
deemed to be the income of the concerned company chargeable to tax
under the head Income from other Sources for the relevant financial
year.

 Investments into eligible start-ups by listed companies with a net

worth of more than INR 100 Crore or turnover more than INR 250
Crore shall be exempt under Section 56 (2) VIIB of Income Tax
Act.
 Investments into eligible Start-ups by Accredited Investors, Non-
Residents, AIFs (Category I), & listed companies with a net worth
more than 100 crores or turnover more than INR 250 Crore, shall
be exempt under Section 56(2)(VIIB) of Income Tax Act.
 Consideration of shares received by eligible start-ups shall be
exempt upto an aggregate limit of INR 25 Crore

PROCEDURE:

Step 1: Incorporate of business

First things first, one need to incorporate r business as a Private Limited

Company or a Limited Liability Partnership or a Partnership firm. The
applicant just needs to follow the normal procedure that includes filling
up a form to get the registration.

Step 2: Register under Start-up India

Now the applicant needs to register his/her firm or company as a start-up

in the Start-up India scheme of the government. the applicant just need
to fill the form available for the applicant on the Start-up India website.

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the applicant has to fill in all the details and upload a certain number of
documents as well. i.e.
https://www.startupindia.gov.in/content/sih/en/startup-scheme.html

Step 3: Documents Required for Start-up India Registration

 Registration certification or Certificate of Incorporation of a

business entity
 Copy of PAN card
 Memorandum of association or Article of Association for
LLP or partnership firm.
 Particulars of the directors such as name, contact details,
and photographs.
 Entity’s social profile or website link.
 IPR related information if any.
 Fund detail in case an entity avail any funding help from
investors.
 List of awards or certificates of recognition, if any.

 the applicant needs a letter of recommendation along with the

registration form. the applicant can get any one of the following
recommendation letters.

 A recommendation letter from an Incubator known in a post-

graduate college in India, in a format approved by the DIPP.
This is regarding the innovative nature of the business; OR
 A recommendation letter from an incubator that the
Government of India funds as part of any specified scheme
to promote innovation; OR
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  A letter from any of the Incubators, recognized by the
Government of India, in DIPP format.
 A letter of funding not less than 20% in equity, by an
Incubation Fund, Private Equity Fund, Angel Fund,
Accelerator, Private Equity Fund, registered with SEBI that
endorses the innovative nature of business; OR
 A recommendation later by the Central or any State
Government of India; OR
 A patent filed and published in the Journal of Indian Patent
office in areas affiliated with the nature of the business being
promoted.
 Registration or Incorporation Certificate
 the applicant needs to upload the certificate of incorporation
of his/her company or LLP, or the registration certificate for a
partnership company.

Step 4: the applicant needs to mention if the applicant needs tax

exemption

 In India, start-ups do not have to pay income tax for the first three
years but to avail such benefits, the company must be certified by
the Inter-Ministerial Board (IMB).
 This is where companies registered with DIPP get relaxation as
the registration is enough to get the benefits. One can get
recognized by applying in get me recognized page in startup india
page by clicking on the below link.

https://www.startupindia.gov.in/content/sih/en/recognition-page.html

Step 5: Self-certification of the following conditions

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  If the applicant is a Private limited company, an LLP or a
partnership firm.
 The applicant’s business must be incorporated or registered
in India, not before 5 years.
 The applicant’s company’s turnover must not be more than
Rs 100 crore.
 The company has to keep innovating something new or
making the existing system better in its own way.
 The applicant’s business must be a fresh idea and not a
splitting up or reconstruction of an existing business.

Step 6: Recognition number

On application of this registration, the applicant will get a recognition

number with immediate effect. The applicant gets the certificate of
registration or incorporation only after the authority goes through all the
applicant’s uploaded documents.

 One needs to be careful while uploading the data, as any

discrepancy in it can cause the applicant to pay a huge fine of up
to 50% of the applicant paid-up capital or Rs 25,000 at the very
least.
 Once the applicant has received the recognition number, they can
file for trademarks, patents, and design registration through any
government of India’s facilitators.

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