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