In 2016, Prime Minister Narendra Modi launched the Startup India programme to encourage more people to start businesses in India. The action plan aims to promote bank financing for entrepreneurs, streamlining the starting process, and provide tax exemptions and other incentives to them.

However, all of the perks and exemptions are only available to companies which meet the criteria of an ‘Eligible Startup.’

Eligibility Requirements for a Start-Up to apply for Start-up India Scheme

So, first, let’s go over the requirements for being an “Eligible Startup.”

The startup can’t be more than 10 years old

This scheme will be open to any Indian businesses that have been established within the last ten years of the policy’s effective date. This government startup programme is available to all enterprises formed or registered after February 15, 2011.

The start up’s annual turnover must not exceed Rs. 100 crores:

To be eligible under this scheme, it is necessary that the start-up’s yearly turnover must not have exceeded Rs. 100 crores in any of the previous five years since its incorporation.

The company must be registered as a private company, limited liability partnership, or partnership firm

A start-up must be registered as a Private Limited Company (PLC) under the Indian Companies Act, 2013, a Limited Liability Partnership (LLP) under the Indian Limited Liability Partnership Act, 2008, or a partnership business under the Indian Partnership Act, 1932 to be eligible for this plan.

The start-up must not be the result of a reorganisation

A start-up should not be founded by severing or reconstructing an existing company. This scheme will not apply to a business founded by separating an organisation into two or more businesses.

The company must be involved in the development of a new product or service

This programme is only for start-ups that are developing a new product, service, or method. There are three requirements for this criterion:

  1. a) The start-up must be developing, deploying, or commercialising a novel product, process, or service based on technology or intellectual property.
  2. b) The start-up must attempt to generate or add value to consumers or processes by developing and commercialising a new product or service or a significantly improved existing product or service.
  3. c) The start-up cannot focus solely on developing products or services that have no economic potential or undifferentiated products or services that provide minimal added value to consumers or businesses.

The start-up must have received DIPP approval that its business is innovative

Every new business must get clearance from the Department of Industrial Policy and Promotion’s (DIPP) Inter-Ministerial Board. A start-up must submit an application to the Inter-Ministerial Board of DIPP to authenticate the innovative character of their firm, together with the following supporting documents:

  • Recommendation from an Indian Incubator based in a Post-Graduate College
  • Recommendation from a Government of India-funded incubator in respect to a scheme to foster innovation
  • Recommendation from a Government of India-approved incubator.
  • A letter of at least 20% equity funding from a Securities Exchange Board of India-registered Incubation Fund, Angel Fund, Private Equity Fund, Accelerator, or Angel Network (SEBI). Such a fund shall not be included in any negative list of funds that DIPP may release in the future.
  • A letter of funding from the federal government or a state government as part of an innovation programme.
  • In areas related to the nature of the business being promoted, a patent is filed and published in the Indian Patent Office Journal.

80 IAC Tax Exemption for Startups in India:

A startup may petition 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 of its existence.

Tax Exemption for Startups in India under Section 56 of the Income Tax Act (Angel Tax)

  • A startup may apply for Angel Tax Exemption after receiving recognition.
  • Section 56 of the Income Tax Act establishes eligibility criteria for tax exemption.
  • The company must be a DPIIT-approved startup.
  • After the proposed share issue, if any, the Startup’s total paid-up share capital and share premium does not exceed INR 25 crore.

Conclusion

The Indian government introduced the Startup India Scheme in 2016. Startup India’s main objectives include the development of businesses, creation of jobs, and the generation of capital. Startup India has launched a slew of activities aimed at cultivating a healthy startup ecosystem and transforming India into a land of job creators rather than job seekers. These programmes are overseen by the Department of Industrial Policy and Promotion (DPIIT). This plan provides numerous benefits while also saving you money on taxes. With the support of the Startup India scheme, you can start your own business if you match the eligibility requirements.