Guide on Start up India

Guide on Start up India

This ambitious scheme was launched on 16th January, 2016 to boost up the Startup ecosystem in India.This article explains who are eligible to get the benefits and what exactly are the benefits.

The Action Plan was divided into 3 categories. 

  1. Simplification and Handholding
  2. Funding Support and Incentives
  3. Industry-Academia Partnership and Incubation

Out of the above three categories the first two deals with the real time benefits that the eligible Start-up will get.

The third category mainly deals with the support and development facilities the Govt wishes to set up in order to boost Startup ecosystem in India.

 Who are Eligible?

 Now how will you determine if your business is Innovative?

Once you fulfil all criteria above you will have to get approval from DIPP (Department of Industrial Policy and Promotion)

  1. 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
  2. Should be supported by an incubator which is funded (in relation to the project) from GoI (Government of India) as part of any specified scheme to promote innovation; OR
  3. Should 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
  4. Should 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; OR
  5. Should be funded by GoI as part of any specified scheme to promote innovation; OR
  6. Should have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.

Who are not eligible?

  1. An entity which is formed by splitting up, or reconstruction, of a business already in existence
  2. A company engaged in mere developing products and services 
    • Which do not have potential for commercialisation
    • Which are undifferentiated
    • Which have no or limited incremental value addition

 How do we get the benefits if we are eligible?

  • For availing various benefits (except tax and IPR related benefits) an entity would be required to be recognized as a Startup by applying on Startup India Mobile App/ Portal. 
  • In order to obtain tax and IPR related benefits, a Startup shall be required to be certified as an eligible business from the Inter-Ministerial Board of Certification.

An existing company can also register itself as a Startup from the Startup India portal or mobile APP.

The process of registration in such cases shall be real time and the certificate of recognition would be issued immediately upon successful submission of the application.

Now, what are the benefits?

A. Simplification and Handholdin

      1.Compliance regime based on Self Certification

Startups shall be allowed to self-certify compliance (through the Startup mobile app) with labour and environment laws (refer below). In case of the labour laws, no inspections will be conducted for a period of 3 years. Startups may be inspected on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one  level senior to the inspecting  officer. 

In case of 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. 

     2.Startup India Hub

        This will be a single point of contact for entire start up ecosystem and will act as a guide         for the Startups

     3.Mobile App and Portal

A mobile app is available from 1st April, 2016which will enable the start-ups to register documents, track status of registration and fulfil other compliances. This way there  will be more clarity regarding the formalities to be done.

     4.Patents at Lower Cost

The scheme for Startup Intellectual Property Protection (SIPP) shall facilitate filing of                  Patents, Trademarks and Designs by innovative Startups. There will be fast track application of patents as a result of this.


  • Government to bear facilitation cost and Startups shall bear the cost of only the statutory fees payable
  • Startups shall be provided an 80% rebate in filing of patents vis-a-vis other companies

     5.Relaxed norms of Public Procurement

Startups are mostly not eligible to participate in tenders floated by the Government because they do not possess prior experience or prior turnover.

In order to promote Startups, Government shall exempt Startups (in the manufacturing sector) from the criteria of “prior experience/ turnover” without any relaxation in quality standards or technical parameters

      6.Fast Exit Mode

The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 has provisions for the fast track and / or voluntary closure of businesses.

In terms of the IBB, Startups with simple debt structures or those meeting such criteria as may be specified may be wound up within a period of 90 days from making of an application for winding up on a fast track basis

B. Funding Support and Incentives

        1. Providing Funding Support

In order to provide funding support to Startups, Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.

        2.Credit Guarantee

In order to encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year  for the next four years.

        3.Tax exemptions on Capital Gains

    •  With the objective of attracting investors to invest in Startup, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government.
    •  Existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups

        4. Tax Exemption for start-up for 3 years

With a view to stimulate the development of Startups in India and provide them competitive platform, it is imperative that the profits of Startup initiatives are exempted from income-tax for a period of 3 years.

        5.Tax Exemption on Investment above FM value

Under The Income Tax Act, 1961, where a Startup (company) receives any consideration for issue of shares which exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of recipient as Income from Other Sources. 

In the context of Startups, where the idea is at a conceptualization or development stage, it is often difficult to determine the FMV of such shares. In majority of the cases, FMV   is also significantly lower than the value at which the capital investment is made.This results into the tax being levied under section 56(2)   (viib). Currently, investment by venture capital funds in Startups is exempted from operations of  this provision. The same shall be extended to investment made by incubators in the   Startups.

Note : Provided that a Startup shall be eligible for tax benefits only after it has obtained  certification from the Inter-Ministerial Board, setup for such purpose.

C. Industry-Academia Partnership and Incubation

        These are fests, research centres and programmes the Govt wishes to Launch in order  to help Start Up India. Not described in details.

  1. Startup Fests
  2. Launch of AIM and SETU programme
  3. Harnessing Private Sector Expertise for Incubator Setup
  4. Building innovation Centre at national Institutes
  5. Making Research Parks
  6. Promoting Startups in the Biotechnology Sector
  7. Launching of Innovation Focused Programs for Students
  8. Annual Incubator Grand Challenge

   To Know more about Startup India, please feel free to Contact Us 

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