Why Should Startups get the DPIIT Recognition under the Startup India initiative?

Startups that meet the DPIIT's definition of a startup are eligible to apply for recognition under the Startup India Action Plan.

Investment promotion is a multifaceted and complicated process that necessitates ongoing efforts focused on Ease of Doing Business, FDI reforms, skill development, infrastructure development, and tax incentives. All of these actions have been brought to light following the government's unveiling of the Make in India initiative in September 2014, which aims to make India the most attractive investment destination. By bringing more activities under the automatic route, expanding sectoral ceilings, and lowering conditionalities, the government has established a comprehensive FDI policy regime. In addition, a variety of efforts have been done to improve the country's business environment. A single window e-commerce site is being used to combine several State and Central government services.

Department for Promotion of Industry and Internal Trade (DPIIT) is in charge of Foreign Direct Investment (FDI) policy formulation, Ease of Doing Business reform monitoring, and Investment Promotion and Facilitation initiatives.
 
1. What is the Startup India initiative?
 
On the 15th of August, 2015, the DPIIT launched the Ease of Doing Business (EoDB) Grand Challenge, inviting The Startup India initiative was unveiled in India. The flagship programme intends to create a robust eco-system in the country for nurturing innovation and startups, which would promote long-term economic growth and provide large-scale job opportunities. On the 16th of January, 2016, an Action Plan for Startup India was released. The Action Plan consists of 19 action items that cover a wide range of topics, including:
  • Simplification and handholding
  • Funding support and incentives
  • Industry-academia partnership and incubation
DPIIT has announced the Ease of Doing Business (EoDB) Grand Challenge, which invites the government to make rapid progress toward realising the objective of the Startup India initiative. The Startup India project, which has sparked entrepreneurial energy across the country, has made significant headway. The DPIIT is in charge of coordinating the Startup India initiative's execution with other government departments.

2. Eligibility Criteria for Startup Recognition
 
Startups that meet the DPIIT's definition of a startup are eligible to apply for recognition under the Startup India Action Plan. At the time of application, which can be made online over the mobile app or the online portal set up by the DPIIT, startups must submit supporting documents such as:
  • a copy of Certificate of Incorporation or Registration, and
  • a write-up about the nature of 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.
Eligibility Criteria for Startup Recognition:
  • The startup should be registered as a partnership firm or a limited liability partnership, or it should be formed as a private limited company.
  • In any of the prior financial years, turnover should have been less than INR 100 crores.
  • For the first ten years after its establishment, an entity is considered a startup.
  • The startup should be focused on improving/innovating existing products, services, and processes, as well as having the potential to create jobs and income. A "Startup" is defined as an entity founded by dividing up or reconstituting an existing business.
 
A business is covered under the definition of startup if it aims to develop and commercialize:
  • a new product or service or process; or
  • a significantly improved existing product or service or process, that will create or add value for customers or workflow.
  • The mere act of developing products or services or processes which do not have potential for commercialization; or
  • Developing undifferentiated products or services or processes; or
  • Developing products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition. 
 
3. Why should startups register? Benefits of Recognition:
 
a) Self-Certify Compliance:
 
Regulatory requirements, such as complying with different labour and environmental rules, are time-consuming and difficult. New and small businesses are frequently uninformed of the complexities of the problem and may be subjected to intrusive regulatory action. Simplifications in the regulatory environment are required to make compliance for Startups friendlier and flexible.
The Indian government has resolved to boost the country's start-up ecosystem in order to encourage entrepreneurs to launch new businesses. As specified by DIPP, start-ups are encouraged to self-certify their compliance with labour laws.
Startups will be able to self-certify compliance with nine labour and environmental laws through the Startup mobile app. Inspections will not be undertaken for a period of three years if labour regulations are violated. On receipt of a credible and verifiable report of violation, filed in writing and approved by at least one level senior to the inspecting officer, startups may be inspected.
 
The Startups may self-certify compliance in respect of the following:
 
Labour Laws:
 
  • Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
  • The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
  • The Payment of Gratuity Act, 1972
  • The Contract Labour (Regulation and Abolition) Act, 1970
  • The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
  • The Employees’ State Insurance Act, 1948
 
Environment Laws:
 
  • The Water (Prevention & Control of Pollution) Act, 1974
  • The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
  • The Air (Prevention & Control of Pollution) Act, 1981
 
 
b) Tax Exemption for Startups under the Startup India Action Plan:

1. Tax exemption under Section 80 IAC of the Income Tax Act: 
A startup can request for tax exemption under section 80 IAC of the Income Tax Act after receiving recognition. After receiving tax exemption approval, the startup can take advantage of a three-year tax holiday out of the first ten years since it was incorporated.
Eligibility Criteria for applying to Income Tax exemption (80IAC):
  • The entity should be a recognized Startup 
  • Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
  • The Startup should have been incorporated after 1st April, 2016
 
2. Tax Exemption under Section 56 of the Income Tax Act (Angel Tax): Post getting recognition a Startup may apply for Angel Tax Exemption. Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:
  • The entity should be a DPIIT recognized Startup
  • Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.

c)
 Faster Exit for Startups
 
Because of the inventive nature of startups, a large portion fail. It is vital to reallocate cash and resources to more productive avenues in the event of a business failure, and as a result, a quick and simple process for Startups to wind-up operations has been presented. This would encourage entrepreneurs to try out fresh and innovative concepts without worry of being trapped in a costly and lengthy exit process where their money will be stuck indefinitely.

The Insolvency and Bankruptcy Code 2016 (IBC), which was introduced in the Lok Sabha in December 2015, includes provisions for enterprises to be closed quickly and/or voluntarily.

According to the IBB, startups with simple debt structures or those that meet certain conditions may be wound up within 90 days of filing an application for fast track winding up. In such cases, an insolvency expert will be appointed for the Startup, who will be in charge of liquidating the company's assets and paying its creditors within six months of the appointment (the promoters and management will no longer be in charge).
 
d). Relaxed Norms of Public Procurement for Startups
 
Whenever a government institution or a public sector undertaking issues a tender, the eligibility requirement is frequently either ‘previous experience’ or ‘previous turnover’. Startups are barred from competing in such tenders as a result of this condition.
To encourage Startups, the government will exclude Startups (in the manufacturing sector) from the ‘previous experience/turnover’ requirements, without compromising quality or technical characteristics.
Startups must also show that they have the necessary capabilities to complete the project according to the specifications and that they have their own manufacturing facilities in India.
 
 
4. Revocation of Certificate of Registration:
 
If the Inter-Ministerial Board of Certification (Board) discovers that a certificate of registration was obtained using fraudulent or falsified information, the Board maintains the authority to revoke the certificate or authorisation.

When a certificate or permission is revoked, it is deemed that the certificate or permission was never issued or granted by the Board.
 
5. Conclusion:
 
DPIIT established the Ease of Doing Business (EoDB) Grand Challenge, which seeks innovative ideas from people, startups, and other businesses for re-engineering government procedures using Artificial Intelligence (AI), Big Data Analytics, Internet of Things (IoT), Blockchain, and other cutting-edge technologies.
 
Recognizing that disruptive business models and breakthrough technology may meet regulatory challenges, DPIIT conducted broad consultations with all stakeholders and collaborated with relevant government agencies to propose regulatory adjustments. So far, as many as thirty six regulatory adjustments have been made to make it easier to establish business, raise financing, and comply with regulations.