Having been in this space for almost two decades, I can really see the enthusiasm amongst the entrepreneurs as the country gears to the frenzy of start-ups. Not that it wasn’t there earlier but the environment has definitely undergone a change and now starting a fresh is not a taboo but an opportunity and everyone from entrepreneurs to investors to bankers to service providers including the government believes that this where the opportunity lies, for India to go to the next level.

 
Recently the government came up with the ambitiousstart up plan which obviously made many entrepreneurs/investors feel was the need of the hour. It gave the much needed stamp of approval to word “start-up” and made it the next “cool” place to be in.

 
Startup India- Action Plan issued onJanuary, 2016 is an initiative of the Government intended to build “an eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities”.  The Startup India Action Plan has 3 aspects:

1. Simplification and Handholding
2. Funding support and incentives
3. Industry academia partnership and incubation  

Each subsequent series will discuss about each of the above aspects in detail and the Government action plans thereto. However, to start with, we wish to list down the eligibility criteria for Start-Ups to avail benefits under the Government Scheme.

Eligibility Criteria for benefits under the Government Scheme

The Government Scheme will be available for those “Start-ups” who fulfills the following eligibility criteria:

1. start-up to be incorporated or registered entity in India i.e. it can either be (a) Private Limited Company or (b) a Registered Partnership Firm or (c) Limited Liability Partnership;

2. five (5) years should not have elapsed since incorporation of such entity;

3. annual turnover not exceeding INR 25 crore in any preceding financial year;

4. the start-up should work towards “innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property” i.e. the business carried out by start-up should aim to develop and commercialize (a) a new product or service or process; or (b) significantly improved existing product or service or process, that will create or add value for customers or workflow.

5. order to be considered eligible, the Start-Up should be supported by recommendation (with regard to innovative nature of business/in relation to the Project etc): (a) in a format specified by Department of Industry Policy & Promotion (DIPP), from an Incubator established in a post-graduate college in India; or (b) by an incubator which is funded (in relation to the project) from Government of India as part of any specified scheme to promote innovation; or (c) by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by Government of India; or (d) be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business; or (e) be funded by GoI as part of any specified scheme to promote innovation; or (f) has a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.  

What (who) is not covered above?  

1. Just to further clarify, the mere act of developing (i) products or services or processes which do not have potential for commercialization; or (ii) undifferentiated products or services or processes; or (iii) products or services or processes with no or limited incremental value for customers or workflow would not be covered;

2. Start-up entity formed by splitting up, or reconstruction, of a business already in existence, will not be covered;

3. an entity shall cease to be a Start-up if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/ registration;

4. entities /Start-Ups funded/recommended by funds who are in the ‘negative list” of funds published by DIPP.

Availing Tax benefits

A Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board set up by Department of Industrial Policy & Procedure to validate the innovative nature of the business for granting tax related benefits.

 
The Action plan set outs the criteria’s and actions that the Government is planning to take and more detailed information may be available once DIPP sets out the Inter-Ministerial Board and the formats for recommendations. 

Please send your queries and feedback to Reena Grover at reena@groverlawchambers.com