The Startup India Scheme is an initiative of the Government of India in 2016. The primary objective of Startup India is the promotion of startups, generation of employment, and wealth creation. The Startup India has initiated several programs for building a robust startup ecosystem and transforming India into a country of job creators instead of job seekers. These programs are managed by the Department for Industrial Policy and Promotion (DPIIT).
Definition of “Startup”
Any company which fall into below list of category will be called as “Startup” and eligible to be recognised by the DPIIT to avail the benefits from the Government of India.
Age of the Company – The Date of Incorporation should not exceed 10 years
Type of Company – Should have been Incorporated as a Private Limited Company or a Registered Partnership Firm or a Limited Liability Partnership
Annual Turnover – Should not exceed Rs.100 crore for any of the financial years since its Incorporation
Original Entity – The company or Entity should have been formed originally by the promoters and should not have been formed by splitting up or reconstructing an existing business
Innovative & Scalable – Should have plan for development or improvement of a product, process or service and/or have a scalable business model with high potential for the creation of wealth & employment
Startup India Scheme
Benefits under Startup India Scheme
The procedure to self-certification is to reduce the regulatory burden on Startups. Also, the Startups could focus on the core business.
Startups are allowed to self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure. (Refer below for the details of laws)
For labour laws, there will be any inspections for a period of 5 years. Startups will be inspected only on receipt of a credible and verifiable complaint of violation in the form of writing to the inspecting officer.
For environment laws, startups 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
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
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
Eligibility to Self-Certification of the companies – DPIIT recognised startups that are within 5 years of incorporation.
Tax Exemption under 80IAC
Eligible startups are exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation.
Eligibility to avail tax exemption under 80IAC
The entity should be recognised by the DPIIT
Only Private Limited Companies or Limited Liability Partnerships are eligible for tax exemption under Section 80IAC
The Startup must have been incorporated on or after 1st April, 2016
Section 56 Exemption
Exemption under Section 56(2)(VIIB) of Income Tax Act
Investments into eligible startups 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 Startups 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 startups shall be exempt upto an aggregate limit of INR 25 Crore
Easy Winding up of Company
This is to ease the shut down or wind up operations of the startups. This will allow the entrepreneurs to reallocate capital and resources to more productive avenues faster.
To encourage entrepreneurs to experiment with new and innovative ideas without facing complex exit processes where their capital stuck in case of business failure.
As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, it can be wound up in 90 days of filing the application for insolvency.
An insolvency professional can be appointed for the Startup who can be in charge of the company including liquidation of its assets and paying its creditors within six months of such appointment. It is responsibility of the insolvency professional to the closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBC.