Startups Eligible for Startup India Exemptions

Prime Minister Shri Narendra Modi on 16th January 2016 announced a slew of programs, incentives and exemptions for Startups in India. The flagship Startup India initiative announced by the Prime Minister is aimed at creating a strong and vibrant startup eco-system in India and to create a culture of Entrepreneurship. In this article, we look at a startup eligibility criteria for the Startup India program. The highlights of the Startup India Action Plan can be read here.

Startup Definition as per the Startup India Action Plan

The Startup India Action Plan defines "Startup" as an entity, incorporated or registered in India not prior to five years, with an annual turnover not exceeding Rs.25 crores in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

An entity is not formed by splitting up, or reconstruction, of a business already in existence.
An entity shall cease to be a Startup if its turnover for the previous financial years has exceeded INR 25 crore or it has completed 5 years from the date of incorporation/registration.
Eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.

Startups Eligible for Startup India Incentives

The Startup India Action Plan has stated that only Private Limited Companies, Limited Liability Partnership and Registered Partnerships are eligible for the Government schemes. Those Companies, LLPs and Registered Partnerships registered even before the announcement are eligible and it is best for Entrepreneurs starting a new business hereon-forth to register a Private Limited Company or Limited Liability Partnership or Registered Partnership.

Startups Eligible for Startup India Tax Exemptions & Incentives

A business is considered to be a startup under the Startup India Action Plan if it aims to develop and commercialize:

New product or service or process;
Significantly improved existing product or service or process, that will create or add value for customers or workflow.

Further, in order for a “Startup” to be considered eligible, the Startup 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
Be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
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
Be funded by an Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI that endorses the innovative nature of the business;
Be funded by GoI as part of any specified scheme to promote innovation;
Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.

Startups NOT Eligible for Startup India Action Plan

The mere act of developing products or services of the following nature DO NOT make an entity eligible for incentives:

Products or services or processes which do not have the potential for commercialization; or
Undifferentiated products or services or processes; or
Products or services or processes with no or limited incremental value for customers or workflow.

Obtaining Startup Tax Exemption under the Startup India Initiative

The startup would be eligible to obtain tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose. The Inter-Ministerial Board setup by DIPP would validate the innovative nature of the business for granting tax-related benefits. However, approval from the Inter-Ministerial Board shall not in any manner, limit or absolve the Startup from any liability incurred in case of any misrepresentation/fraud arising from the submission of such application and/or supporting such application.

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Frequently Asked Questions

Common questions about Startup India Exemptions Eligibility: Key Criteria Explained.

According to the Startup India Action Plan, only Private Limited Companies, Limited Liability Partnerships, and Registered Partnerships are eligible for the Government schemes and incentives. Existing companies, LLPs, and partnerships registered before the announcement are also eligible.

A "Startup" is defined as an entity, incorporated or registered in India not prior to five years, with an annual turnover not exceeding Rs. 25 crores in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

To be eligible for tax benefits under the Startup India Action Plan, a Startup must obtain certification from the Inter-Ministerial Board, which validates the innovative nature of the business. The Startup must also meet certain criteria, such as having a recommendation from an approved incubator, being funded by the government or recognized funds, or having a patent granted by the Indian Patent and Trademark Office.

No, not all businesses developing new products or services are eligible for Startup India incentives. The mere act of developing products or services that do not have the potential for commercialization, are undifferentiated, or have limited incremental value for customers or workflow does not make an entity eligible for incentives.

A business will cease to be a "Startup" if its turnover for the previous financial years has exceeded INR 25 crore or if it has completed 5 years from the date of incorporation or registration.

Yes, there is a specific process to obtain tax exemptions under the Startup India initiative. The startup must first obtain certification from the Inter-Ministerial Board, which validates the innovative nature of the business for granting tax-related benefits.

Businesses that develop products or services or processes that do not have the potential for commercialization, are undifferentiated, or have no or limited incremental value for customers or workflow are not eligible for Startup India incentives.

No, an entity formed by splitting up or reconstruction of a business already in existence cannot be considered a "Startup" under the Startup India Action Plan.

Yes, to be considered a "Startup" under the Startup India Action Plan, the entity's annual turnover should not exceed Rs. 25 crores in any preceding financial year.

No, a Startup cannot obtain tax benefits without certification from the Inter-Ministerial Board set up for this purpose. The certification validates the innovative nature of the business, which is necessary for granting tax-related benefits.