Complete guide on Start-Up India By CA Mohit Bansal


An entrepreneurial venture which is typically a newly emerged business that aims to meet a marketplace’s need by developing a viable business model around a product, service, process or a platform. Start-ups entails uniqueness in business idea.

In simple terms , it can be defined as “A startup is a company that is in the first stage of its operations. These companies are often initially bankrolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand”.

With a view to bring uniformity and clarity, Department of Industrial Policy and Promotion (DIPP) vide its first notification dated 17th February, 2016 introduced the definition of startup. During the last 4 years, the definition has undergone several changes and Department for Promotion of Industry and Internal Trade (DPIIT) vide its notification dated 19th February, 2019 amended the definition of startup can be classified as under:


Mandatory criteria to be fulfilled to be eligible for DPIIT startup recognition:

1. Entities Eligible – Sole Proprietorship, Partnership Firm (Registered), One Person Company (OPC), Limited Liability Partnership (LLP), Private Limited

2. Company Age - Max. 10 years from the Date of Incorporation

3. Company Type : Incorporated either as

a)    Private Limited Company,

b)    Registered Partnership Firm

c)    Limited Liability Partnership

4. Annual Turnover - Annual turnover should not exceed Rs. 100 crore for any of the financial years since its Incorporation

5. Original Entity - Entity should not have been formed by splitting up or reconstructing an already existing business

6. Innovative & Scalable- Most importantly, Start-up should work towards development or improvement of a product, process or service and/or have scalable business model with high potential for creation  of wealth & employment.

B. How to Establish a Startup in India?

In order to commence operations, Startups require registration with relevant regulatory authorities. Delays or lack of clarity in registration process may lead to delays in establishment and operations of startups, thereby reducing the ability of the business to get bank loans, employ workers and generate incomes. Enabling registration process in an easy and timely manner can reduce this burden significantly.

The following steps enumerate the startup registration process:

Step 1: Incorporate Business

First, you must incorporate the business as a Private Limited Company or a Limited Liability Partnership or a Partnership firm and make it a legal entity.

Also make sure you have obtained all the certificate of partnership or incorporation registration, PAN, and other necessary compliances.

Step 2: Register with Startup India

Startup India, initiated by the Government of India is a flagship initiative launched in January 2016. This initiative is taken by the government of India to boost the ecosystem for supporting innovation and startups in India. Through this scheme, the government is looking forward to driving sustainable economic development and enhance employment opportunities in India.

Registering for a startup is a very simple process. All you need to do is upload a form with all requisite documents (in PDF format only) on startup India website i.e . The entire process is simplified and made online by the government.

Step 3: Process of Recognition

In terms of DIPP’s 2016 notification, the application for availing the recognition of startup required a recommendation letter from incubator established in PG College in India or a letter of support from incubator or letter of funding by Government of India or any State Government etc.

Nonetheless, to make it simple, the amended process of recognition of an entity as startup does not contain such requirement and the amended process is as under:

i.    A Startup shall make an online application over the mobile app or portal set up by the DPIIT.

ii.    The application shall be accompanied by—

       ¤ A copy of Certificate of Incorporation or Registration, as the case may be, 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.

The write- up must answered the following question :

1.    What is the problem the startup is solving?

2.    How does your startup propose to solve this problem?

3.    What is the uniqueness of your solution?

4.    How does your startup generate revenue?

iii.    The DPIIT may, after calling for such documents or information and making such enquires, as it may deem fit, —

     ¤ Recognize the eligible entity as Startup; or

     ¤ Reject the application by providing reasons.

Step 4: Answer whether to avail tax benefits

To enable the startup to focus on growth of their business, reliefs or exemptions have been extended to them under various legislations and some of the critical legislations and exemptions thereof are summarized below:

I.    Income Tax Benefits

1.    ‘Eligible startups’ carrying on ‘eligible business’ as explained under Explanation to section 80-IAC of the Income Tax Act, 1961 may obtain Certificate for the purpose of the said section by making an application in prescribed Form-1 to the Inter-Ministerial Board.

The Board before granting the Certificate may call such documents or information as they may deem fit. It can also reject the application by giving reasons thereof.

Obtaining Certificate under Section 80-IAC of the Income Tax Act allows the eligible startup, in computing total income, a deduction of an amount equal to 100% of the profits and gain derived from such business for a consecutive 3 assessment years. Such deduction can be claimed by the assessee for any 3 years out of total 7 years from the date of incorporation of startup.

2.    Startups are also eligible for availing exemption under section 56(2) (viib) of the Income Tax Act, 1961. The said section states that if the company receives any consideration for issue of shares which extends the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of the recipient. To seek exemption as above, the startup need to fulfill the following conditions:

•      it has been recognized by DPIIT; and

•    aggregate amount of paid up share capital and share premium of the startup after issue or proposed issue of share, if any, does not exceed, twenty five crores rupees.

To compute the paid up share capital, the amount of paid up share capital and share premium of Rs. 25 crores in respect of shares issued to any of the non-resident or a venture capital company/ fund shall not be included. Apart from this, there are investment restrictions on certain assets detailed in the DPIIT notification dated 19th February, 2019.

The startups that fulfill the above condition can submit declaration in Form 2 to DPIIT which will forward the same to CBDT for granting the exemption under this section.

II.    Relaxation under Companies Act, FEMA and Labour and Environmental Laws

The government of India realizing the hardships faced by startups aims to reduce their regulatory burden thereby allowing them to focus on their core business. Keeping this in mind, it has exempted/relaxed them from a plethora of compliances under various laws such as Companies Act, FEMA and Labour and Environmental laws.

Step 5: Self Certification

The startup needs to self certify that the following conditions are satisfied:

¤ Your company must be registered as a Private Limited Company or Partnership firm or a Limited Liability Partnership.

¤ Your business must be incorporated/ registered in India not before five years.

¤ Turnover must be less than 25 crores per year.

¤ The business must be operating towards innovating something new or significantl upgrading the existing technology.

 ¤ The particular startup business should not be an outcome of splitting up or reconstruction of an existing business.

Step 6: Immediately get Recognition Number

Once the application is submitted, a recognition number will be immediately issued to the startup. The Certificate of Recognition will be released upon the examination of all the submitted documents. If the appropriate documents are not uploaded or are found to be forged, a fine on the applicant will be levied equivalent to 50% of the paid up capital of the startup with a minimum fine of R. 25,000.

C.    Benefits Post Start-Up India Registration in India?

1.    Self – Certification Compliances

Startups shall be allowed to self-certify compliance for 6 Labour Laws and 3 Environmental Laws through a simple online procedure.

Labour Laws:

•    The Building and 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

In the case of labour laws, no inspections will be conducted for a period of 5 years. Startups may be inspected only on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.

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

In the 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.    Ease for Start-ups in Patent Application and IPR Applications

Patent applications filed by startups shall be fast-tracked for examination so that their value can be realized sooner.

A panel of “facilitators” shall be empaneled by the Controller General of Patents, Designs and Trademarks (CGPDTM), who shall also regulate their conduct and functions and responsible for providing general advisory on different intellectually property as well as information on protecting and promoting intellectual property in other countries.

The Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the 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.

3.    Easy Closure of Company

As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, or those meeting certain income specified criteria* can be wound up within 90 days of filing an application for insolvency.

An insolvency professional shall be appointed for the Startup, who shall thereafter be in charge of the company (the promoters and management shall no longer run the company) including liquidation of its assets and paying its creditors within six months of such appointment.

Upon appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBC. This process will respect the concept of limited liability.

4.    Easier Public Procurement Norms

Opportunity to list your product on Government e- Marketplace: DPIIT Recognized Startups can register on GeM as sellers and sell their products and services directly to Government entities. This is a great opportunity for startups to work on trial orders with the Government.

Exemption from Prior Experience/Turnover: In order to promote startups, the Government shall exempt Startups in the manufacturing sector from the criteria of “prior experience/ turnover” without any compromise on the stated quality standards or technical parameters. The Startups will also have to demonstrate requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India.

EMD Exemption: DPIIT recognized startups have been exempted from submitting Earnest Money Deposit (EMD) or bid security while filling government tenders.

The Government of India through its flagship Startup India Program initiative has taken a slew of policy initiatives to build a robust, conducive and growth-oriented environment intended to catalyze startup culture and build a strong and inclusive ecosystem for innovation and entrepreneurship in India. The current government is welcoming of young entrepreneurs to be a part of the growth story of India. The startups have the potential to redefine our economy by establishing India as a technology-rich nation, providing employment opportunities, create wealth for investors and inspire people, especially the students to become entrepreneurs.

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