Prime Minister Narendra Modiji on 16th January, 2016 announced a plethora of incentives and exemptions for Startups in India. The flagship Startup India initiative announced by the Prime Minister is aimed at creating a strong and vibrant startup eco-system in India and to create a culture of Entrepreneurship.
We have several new companies being setup in the name of startups in the country. Are all those startups eligible for the benefits that were announced?
In this column we shall have a glance at the startup eligibility criteria for the Startup India program which are as follows:
- The firm incorporated should be less than five years’ old.
- The Annual Revenue should be of less than Rs. 25 crores.
- They should get approval from inter-ministerial board to be eligible for tax benefits and also get recommendation from an Incubator recognized by government, domestic venture fund or have an Indian patent
- The Startup India Action Plan has literally mentioned that only Private Limited Companies, Limited Liability Partnership and Registered Partnerships are eligible for the Government schemes. This means the Proprietorships concerns, Cooperative societies and so on are NOT eligible for the same.
Whether the Companies registered prior to the announcement of the Startup India Action Plan can be eligible for the benefits of the plan?
In our understanding the answer is YES provided they fulfill all the conditions as described. For better clarity on taxation part, one needs to wait for the Union Budget 2016.
Do all the companies fulfilling the conditions, become eligible to obtain the approval from the inter-ministerial board?
NO, a business is considered to be a startup under the Startup India Action Plan if it aims to develop and commercialize:
- New product or service or process;
- Significantly improved existing product or service or process, that will create or add value for customers or workflow.
Further, in order for a “Startup” to be considered eligible, the Startup should:
- Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or
- Be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
- Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI; or
- 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;
- Be funded by GoI as part of any specified scheme to promote innovation;
- Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.
Startups NOT Eligible for Startup India Action Plan
The mere act of developing of products or services of the following nature DO NOT make an entity eligible for incentives:
- Products or services or processes which do not have potential for commercialization; or
- Undifferentiated products or services or processes; or
- Products or services or processes with no or limited incremental value for customers or workflow.
This is a good start of a dialogue between the upcoming startup communityand the Government of India. This has given the startups which can create great value and jobs for the country, a platform and weightage. The above gives a fare idea as to the fitting into eligibility has got a lot of “ifs” and “buts” though. One needs to be really doing something unique to pass through the needle hole of the regulations. Even after entering, the things like “three years of Income Tax Exemptions” are limiting and would really NOT be able to help the startups in real sense.
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