Revised Guidelines For Recognition Of Startups

To access tax benefits and easier compliance, companies have to be recognized as Startups by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Startup India initiative. Startup India has recently issued the Revised Guidelines For Recognition Of Startups. The current article briefs the condition for Recognition of Startups.

Recognition of Startups

Under the Startup India initiative, eligible companies can get recognized as Startups by DPIIT to access a host of tax benefits, easier compliance, IPR fast-tracking, & more.

After obtaining the DPIIT Certificate of Recognition for Startups, the entity will be allowed to self-certify compliance under 3 Environmental Laws and 6 Labour Laws.
The DPIIT recognized startups are required to pay only 80% of the fees on Patents, trademarks, copyrights, and design, and the fast-tracking of a patent application will be available for startups.
The DPIIT recognized startups will get an opportunity to list the product on Government e-Marketplace.
DPIIT recognized startups are exempted from submitting Earnest Money Deposit
Exemption from Prior Experience/Turnover is provided for Start-ups in all Central Government ministries and departments
According to the Insolvency and Bankruptcy Code, 2016, the company can be wound up within 90 days of applying for insolvency
The startups will be eligible for Rs.10000 crore funds of funds from the Alternative Investment Funds.
he startups can avail Rs.2000 crore Credit Guarantee fund through the National Credit Guarantee Trust Company or SIDBI over 4 years
After obtaining the Certificate of Recognition, the startup can apply for Tax exemption under section 80 IAC of the Income Tax Act.
The DPIIT recognized startups can apply for Angel Tax Exemption.
For obtaining the clearance for Tax exemption, the DPIIT recognized startups are exempted from income tax for 3 consecutive fiscal years out of its first ten years since formation.

Guidelines for Recognition of Startups

The Revised Guidelines For Recognition Of Startups is as follows:

Merger/ Demerger/ Acquisition/ Amalgamation/ Absorption of Entity

The entities formed due to merger, demerger, acquisition, amalgamation, or absorption will not be recognized as startups.
However, merger or amalgamation under section 233 of the Companies Act, 2013 between any of the following class of companies will be allowed subject to fulfillment of norms of DPIIT Notification by the resultant company:
- Two or more start-up companies
- One or more start-up company with one or more small company

Compromise/ Arrangement

Entities formed due to compromise or arrangement as provided under the Companies Act, 2013 will not be recognized as Startup.

Conversion of an Entity

Conversion of an entity from one form to another shall not be a bar for availing recognition subject to the fulfillment of condition provided in sub-section (3) of section 80-IAC of the Income-tax Act, 1961.

Holding including foreign holding, Subsidiary including foreign subsidiary, Joint Ventures

Holding/Subsidiary Companies will not be permitted for recognition. Any startup becoming holding/subsidiary of any company after recognition will be derecognized.
Any entity formed by Joint Venture will not be recognized. Any Startup entering into any Joint Venture will be unrecognized.

Entities incorporated outside Indian Territory

Entities incorporated outside India will be ineligible for recognition.
Shareholding by Indian promoters in the startup should be at least 51%, as per Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.

Name Change of a Recognized Startup

Changes in the name of a recognized Startup necessitated under the relevant provisions of the applicable Act will be permitted. The benefits will be applicable starting from the original date of incorporation/registration or commencement of business by the original entity, whichever is earlier.

CIN/LLPIN Change

Changes necessitated in Corporate Identity Number / Limited Liability Partnership Identification Number due to change in domicile State, due to conversion, change in industry/ sector subject to cancellation of the existing certificate, shall be permitted subject to approval obtained as per the relevant act.

The benefits will be applicable starting from the original date of incorporation/registration or commencement of business by the original entity, whichever is earlier.
Changes in CIN/LLPIN for any other reasons will not be permitted.

Incorporating additional entities

Incorporating additional entities with similar addresses with the same production services and at least one common director, the partner will not be recognized as a startup.

Common directorship/partnership

Recognition of an entity having a common director, designated partner, partner with any other entity shall be allowed to the extent permissible under the provisions of the Companies Act, 2013. Related party transactions shall not be allowed except transactions on an arm’s length basis.

Regulatory Areas

Entities operating in domains specifically prohibited by law shall not be recognized.

Sole Proprietorship

A sole proprietorship is not eligible to apply for Startup recognition. If a sole proprietorship changes its type of entity into a type permissible for recognition, then the recognition will be granted from the date of commencement of business of the sole proprietorship

Click here to know more about the DPIIT Certificate of Recognition for Startups

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Frequently Asked Questions

Common questions about Revised Guidelines for Startup Recognition by DPIIT.

To obtain recognition as a Startup under the Startup India initiative, eligible companies need to apply to the Department for Promotion of Industry and Internal Trade (DPIIT) and obtain a Certificate of Recognition for Startups. This certificate allows startups to access various benefits like tax exemptions, easier compliance, IPR fast-tracking, and more.

Recognized Startups can self-certify compliance under 3 Environmental Laws and 6 Labour Laws. They pay only 80% of the fees on Patents, trademarks, copyrights, and designs, and can fast-track patent applications. They can list their products on Government e-Marketplace, get exemption from Earnest Money Deposit, and exemption from Prior Experience/Turnover requirements for Central Government tenders.

Yes, the Revised Guidelines for Recognition of Startups outline several restrictions. Entities formed due to merger, demerger, acquisition, amalgamation, or absorption cannot be recognized as Startups. Holding/Subsidiary Companies, Joint Ventures, and entities incorporated outside India are also ineligible for recognition.

Changes in the name of a recognized Startup necessitated under the relevant provisions of the applicable Act will be permitted, and the benefits will continue from the original date of incorporation or commencement of business. Changes in CIN/LLPIN due to change in domicile State, conversion, or change in industry/sector are also allowed, subject to approval and cancellation of the existing certificate.

Recognition of an entity having a common director, designated partner, or partner with any other entity is allowed to the extent permissible under the Companies Act, 2013. However, related party transactions are not allowed except on an arm's length basis.

No, a sole proprietorship is not eligible to apply for Startup recognition under the Startup India initiative. However, if a sole proprietorship changes its type of entity into a permissible type, then recognition can be granted from the date of commencement of business of the sole proprietorship.

Recognized Startups can apply for Tax exemption under section 80 IAC of the Income Tax Act and Angel Tax Exemption. They are exempted from income tax for 3 consecutive fiscal years out of their first ten years since formation, subject to fulfillment of certain conditions.

Yes, recognized Startups are eligible for Rs.10,000 crore funds of funds from the Alternative Investment Funds. They can also avail Rs.2,000 crore Credit Guarantee fund through the National Credit Guarantee Trust Company or SIDBI over 4 years.

Yes, entities operating in domains specifically prohibited by law shall not be recognized as Startups under the Startup India initiative.

Incorporating additional entities with similar addresses, the same production services, and at least one common director or partner will not be recognized as a separate Startup. This is to prevent the misuse of the Startup recognition benefits.