Startup India Guide

What is the Startup India Initiative?

In order to boost entrepreneurship in India, the Startup India campaign was announced for the first time on 15th August 2015 by the Prime Minister of India, Shri Narendra Modi. However, the action plan of the Startup India Scheme was unveiled on 16th January 2016.
Notably, Startup India Scheme is one of the flagship initiatives of the Central Government of India. Under Startup India Scheme, several programs are rolled out with the following objectives -

• To support entrepreneurs;
• To build a robust startup ecosystem;
• To transform India from a country of job seekers to a country of job creators; etc.

We will go through the eligibility criteria and action plans under the Startup India Scheme.

Eligibility Criteria:

To register under this initiative, there are stringent eligibility criteria in place:

• Company Age: The period of existence and operations should not exceed 10 years from the Date of Incorporation.
• Company Type:  The following form of organisations are eligible to sign up as a startup:

• Annual Turnover: Should have an annual turnover not exceeding Rs.100 crore for any of the financial years since its Incorporation.
• Original Entity: Entity should not have been formed by splitting up or reconstructing an already existing business.
• Innovative & Scalable: Should work towards the 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.

Benefits:

Start-ups that successfully register enjoy a myriad of benefits, such as:

• Self-certify - Start-ups are allowed to self-certify compliance with 6 Labour Laws and 3 Environmental Laws through a simple online procedure.
• Easy & quick IPR application- Patent applications filed by start-ups are fast-tracked for examination so that their value can be realised sooner.
• Rebate of patent application - Also, Start-ups are provided with an 80% rebate in filing patents vis-a-vis other companies. This will help them spare costs in the crucial formative years.
• Easy winding up of the company- As per the Insolvency and Bankruptcy Code, 2016, start-ups with simple debt structures or those meeting certain income specified criteria can be wound up within 90 days of filing an application for insolvency.
• Easy public procurement norms- DPIIT recognised start-ups have been exempted from submitting Earnest Money Deposits (EMD) or bid security while filling government tenders. Also, DPIIT Recognized Start-ups can register on GeM as sellers and sell their products/ services directly to Government entities. This is a great opportunity for start-ups to work on trial orders with the Government.
• Tax exemptions allowed to Eligible Startups under Startup India Program-
  • 3-year tax holiday under Section 80-IAC, of Income Tax Act, 1961:
    • Start-ups will be eligible for getting 100% tax rebate on profit for a period of three years in a block of seven years. This will help the start-ups to meet their working capital requirements during their initial years of operation. Such deduction would be available upon filing an application with DPIIT provided that annual turnover does not exceed Rs.25 crores in any financial year.
  • Exemption from tax on Long-term capital gains u/s 54EE:
    • A new section 54 EE has been inserted in the Income Tax Act for the eligible start-ups to exempt their tax on a long-term capital gain if such a long-term capital gain or a part thereof is invested in a fund notified by the Central Government within a period of six months from the date of transfer of the asset.
    • The maximum amount that can be invested in the long-term specified asset is Rs 50 lakh. Such amount shall be remained invested in the specified fund for a period of 3 years. If withdrawn before 3 years, then the exemption will be revoked in the year in which money is withdrawn.
  • Tax exemption on investments above the fair market value Under Section 56(2)(viib), of the Income Tax Act, 1961:
    • Domestic companies are required to issue their shares at fair market value (FMV) determined on net assets value basis or discounted cash flow basis determined by the merchant banker. Any amount received by the company from residents in India in excess of FMV is liable to tax in the hands of the company (popularly known as ‘Angel tax’). Upon filing the requisite declaration with DPIIT and subject to certain conditions, Eligible start-ups are exempted from Angel tax.
  • Tax exemption to Individual/HUF on investment of long-term capital gain in equity shares of Eligible Start-ups u/s 54GB:
    • The existing provisions u/s 54GB allows the exemption from tax on long-term capital gains on the sale of a residential property if such gains are invested in the small or medium enterprises as defined under the Micro, Small and Medium Enterprises Act, 2006. But now this section has been amended to include exemption on capital gains invested in eligible start-ups also.
    • Thus, if an individual or HUF sells a residential property and invests the capital gains to subscribe the 50% or more equity shares of the eligible start-ups, then tax on long term capital will be exempt provided that such shares are not sold or transferred within 5 years from the date of its acquisition.
    • The start-ups shall also use the amount invested to purchase assets and should not transfer asset purchased within 5 years from the date of its purchase.
    • This exemption will boost the investment in eligible start-ups and will promote their growth and expansion.
  • Set off & carry forward losses and capital gains allowed in case of a change in Shareholding pattern.
    • The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares carrying voting power on the last day of the year in which the loss was incurred continue to hold shares on the last day of the previous year in which such loss is to be carried forward. The restriction of holding of 51 per cent of voting rights to be remaining unchanged u/s 79 has been relaxed in the case of eligible start-ups.

Note: Post getting recognition a Start-up may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Start-up can avail of tax holiday for 3 consecutive financial years out of its first ten years since incorporation.

Registration Process:

• Incorporate your business entity- The first step is to incorporate any one of the abovementioned three entities.
• Register with DPIIT Start-up India- Go to https://www.startupindia.gov.in/ and create your Start-up India profile using your name, mobile no., email ID, etc.
• Register with NSWS- After your profile has been created, log in to your profile and click on “Apply for DPIIT Recognition”. On the next page, click on ‘Apply as Company or LLP’ or ‘Apply as Partnership Firm’. When clicking on the ‘Apply for Company or LLP’ button, it will redirect you to the National Single Window System (NSWS) website. Companies and LLPs should register on the NSWS website and add the form ‘Registration as a Start-up’ to get DPIIT recognition.
• Fill in the application form- On the ‘Start-up Recognition Form’, you need to fill in the details such as the entity details, office address, authorised representative details, directors/partner details, information required, start-up activities and self-certification and submit the form.
• Recognition number- On submitting the form, you will get a recognition number immediately and afterwards, upon verification of all your documents, a registration certificate will be issued.

Documents Required for Registration:

• A copy of incorporation/registration Certificate of your start-up
• Authorisation letter of the authorised representative of the company, LLP or partnership firm
• PAN of the authorised representative
• Proof of funding, if any
• A write-up about the nature of the business highlighting 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 like pitch deck/website link/video (in case of a validation/ early traction/scaling stage start-up)
• Patent and trademark details, if any
• List of awards or certificates of recognition, if any.

Proof of Concept [PoC]

A PoC is a concrete proof of whether the idea will actually work or not and how it will be executed with the target audience. PoC is a demonstration of the idea or method to prove its feasibility. It is a way of testing whether a particular business idea can be turned into a profitable venture or not. Depending on the type of business, a PoC can take any form, be it a video representing the idea, described in a document, or an early prototype of the product.

Some tips to frame a PoC:

• Conduct a thorough research and development around the history of any similar work done or being done around the world. If you find no similar work or any existing guides, articles or information, then your idea is very original.
• Justify the need of your idea, how people will benefit from the same. Specify the problem of which your idea will give a solution and why it is needed.
• Describe the implementation of your idea [practicality and profitability].

Conclusion:

Registering a start-up in India is not only a legal necessity but also a strategic move to avail numerous benefits that can help your business scale quickly and efficiently. DPIIT’s Start-up India initiative makes this process easier, more transparent, and beneficial for Indian entrepreneurs. Armed with this information, you can confidently take the first step in your entrepreneurial journey.

Services we offer to Startups under Startup India Initiative:

At Kanumuri & Co, we offer a range of specialized services tailored to support startups under the Startup India initiative. Our comprehensive offerings include:

1. Startup Registration Assistance: Guidance and support in registering your startup under the Startup India initiative, ensuring compliance with the eligibility criteria and registration process.
2. Business Plan Development: Assistance in developing a robust business plan that outlines your startup's vision, objectives, market strategy, and financial projections, essential for attracting investors and stakeholders.
3. Legal and Regulatory Compliance: Expert guidance on understanding and complying with legal and regulatory requirements applicable to startups, including company registration, intellectual property rights, labor laws, and tax compliance.
4. Funding and Investment Support: Assistance in identifying potential funding sources, including venture capital firms, angel investors, and government schemes, and guidance throughout the fundraising process.
5. Financial Management and Accounting: Accounting and bookkeeping services tailored to the needs of startups, including financial statement preparation, budgeting, cash flow management, and tax planning.
6. Intellectual Property Protection: Advisory services on protecting your startup's intellectual property assets, including trademarks, patents, copyrights, and trade secrets, to safeguard innovation and prevent infringement.
7. Technology and Innovation Advisory: Guidance on leveraging technology and innovation to enhance your startup's competitiveness and scalability, including advice on product development, technology adoption, and digital transformation.
8. Marketing and Branding Support: Strategic guidance on developing a strong brand identity, creating marketing campaigns, and leveraging digital marketing channels to increase brand visibility and attract customers.
9. Networking and Mentorship: Access to networking opportunities, industry events, and mentorship programs aimed at connecting startups with experienced entrepreneurs, industry experts, and potential collaborators.
10. Compliance with Startup India Benefits: Assistance in availing the various benefits and incentives offered under the Startup India initiative, such as tax exemptions, self-certification compliance, and fast-track patent examination.

At Kanumuri & Co, we are committed to empowering startups to thrive in the dynamic business landscape, providing tailored solutions to address their unique challenges and fuel their growth journey under the Startup India initiative.