Indian economy is still in the developing state, but it is one of the fastest developing economies in the world. For progress of any economy, it is essential that new businesses are started and investors invest in such business. Favorable government policies, easy of doing business, ample and sustainable access to resources, etc, are of paramount importance for these businesses to flourish.
Some of the benefits of a new economy are:
- They create new jobs for the people of the country.
- These new businesses try to end the monopoly of the big companies in the markets.
- The products made by these businesses are available at a cheaper rate and it also helps to maintain the demand and supply chain of raw materials and finished goods.
- These businesses being home grown, are also beneficial in reducing the influence of MNCs and pave better opportunities for local businesses.
Hence these startups being so beneficial are now recognized and supported by the Government of India. Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry through notification dated 23rd May 2017 defined the term “Startup” and setting a cap for turnover. It also provided for a process that Startups can be recognized by and outlined its benefits.
Definition of startup
For an entity to be considered a Startup it shall be-
- Incorporated as a Private Limited company (as defined by Companies Act 2013) OR
- Or registered Partnership Firm (according to Section 59 of the Partnership Act) OR
- A Limited Liability Partnership in India (according to Limited Liability Partnership Act 2008)
(Splitting up or reconstitution of a business shall not be considered as startup)
The number of years up to which these entities shall be recognized as startups-
- Up to 7 years from the date of its incorporation or registration.
- In case of startups in biotechnology sector up to 10 years from the date of its incorporation/registration.
The turnover for such entity for being recognized as startup-
Turnover as defined by Companies Act 2013 is the aggregate value of the realization of amount made from the sale, supply, or distribution of goods or on account of services rendered, or both, by the company during a financial year. The turnover shall not exceed 25 Crore Rupees in any financial year since its incorporation/registration.
The performance that is expected from such entity to be considered as startup-
- is work towards development or innovation or improvement of products, processes, or services
- It is a scalable business model with high potential of employment generation or wealth creation.
Ceasing of an entity from being startup
- If seven years from the date of its incorporation/registration have been completed
- If the turnover for any previous year exceeds Rupees 25 Crores
- In case of startups at biotechnology sector, an entity shall cease to be a Startup on completion of ten years from the date of its incorporation/ registration or if its turnover for any previous year exceeds Rupees 25 crores.
Process of recognition of startups
- An online application is to be made over the mobile app/ portal setup by the Department of Industrial Policy and promotion.
- Along with the online application, certification of Incorporation/ Registration and other details as may be required to be submitted.
- Write up about the nature of business, essentially showing how it is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation also needs to be submitted.
These Startups will also be provided with tax benefits but in order to obtain the tax benefits the startups need to meet certain requirements.
- Nature of entity
- It should be a private limited company as defined by companies Act 2013;or
- A limited liability partnership as defined by limited liability partnership Act, 2008
They have to be incorporated on or after 1st April 2016 but before 1st April 2019.
- performance of such entity
- It has to work towards development or innovation or improvement of products, processes, or services OR
- It has to be scalable business model with high potential of employment generation or wealth creation.
- Such an entity would is required to obtain certificate from inter-Ministerial Board of Certification as constituted by Department of Industrial Policy and Promotion from time to time.
Entities not eligible for tax benefit.
Developing of products, processes or services,
- That do not have a potential of commercialization,
- That are undifferentiated,
- With no or limited incremental value for customers or workflow.
Revocation of recognition certificate and certificate for tax benefit
Department of Industrial Policy and Promotion reserves the right of revocation of any of the certificates without any prior notice or reason if they have been obtained-
- without uploading the relevant documents or
- by providing false information.
Almost all the countries in the world which have a welfare economy recognize the need to make the market an easy place for new and small businesses to start and grow. This requires certain benefits need to be given by the government through policies, progressive laws, effective regulatory mechanisms, etc. The process of recognition of a business and the process to avail the benefits has to be made easier so as to encourage them. India now recognizes the power of innovation and hence has made it simpler for people to open small business through the name of startup and also made other provisions for the welfare of such startups.