On 16th January, 2016, the Prime Minister of India announced exemptions for startups that qualify for the Startup India initiative under the Startup India Action Plan.
The Startup India Action Plan defines a startup as an entity that has been in existence for under 5 years with an annual turnover of fewer than 25 crores and is registered or incorporated in India. The startup should be driven by intellectual property and innovation working towards development, innovation, commercialization of a process, service or a new product.
- Form of Entity
Only Registered Partnerships (under the Indian Partnership Act, 1932), Limited Liability Partnerships (under the Limited Liability Partnership Act, 2008) and Private Limited Companies (under Companies Act, 2013) are eligible for schemes provided by the Government under The Startup India Action Plan. It is recommended that an entrepreneur/founder who intends to run a startup ought to register and incorporate the company either as a registered partnership, an LLP or a Pvt. Ltd. Company.
The entity eligible to be a startup cannot be formed from an already existing business by conversion.
- Tax benefit
Any tax benefit or exemption under this plan is applicable only after an entity obtains certification and validation from the interministerial board (set up by the DIPP).
Startups Not Eligible
The following are conditions for entities that are not eligible to be considered a startup, if the entity provides services or products that:
- Are undifferentiated.
- Cannot be commercialized.
- Have no incremental value for workflow or the customers.
Conditions For Being Considered A Startup
For an entity to be considered a startup, the entity should be ‘supported’ by any one of the following:
- A recommendation in Department of Industrial Policy and Promotion (DIPP) format from an incubator established in a Postgraduate College in India.
- A Government funded incubator (in relation to the entity) as part of a scheme to promote innovation.
- A recommendation (with respect to innovative nature of the business) in DIPP format from a Government recognized incubator.
- Any entity (such as a Startup Fund, Angel Fund, Private Equity Fund, Angel Network or Fund, Incubation Fund, etc.) registered with the SEBI that supports innovative business.
- Be funded by the Government of India as part of a scheme to promote innovation.
- Be granted a patent by the Indian Patent and Trademark Office for operating in specified areas.