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February 2016

Start-up India plan: accelerating start-up movement

by Neeraj Dubey

The Start-up India initiative of the Government of India (“GOI”) was announced on January 16, 2016 with the aim to empower start-ups to grow through innovation and design. This initiative strives to build a strong eco-system for nurturing innovation and start-ups so that start-ups drive sustainable economic growth and generate large scale employment opportunities. So, the initiative hopes to spread the start-up movement from digital/technology sector to a wide array of sectors including agriculture, manufacturing, social sector, healthcare, education, etc. and from existing tier 1 cities to tier 2 and tier 3 cities including semi-urban and rural areas. Keeping this perspective in consideration, the Action Plan is divided across the following areas: (a) Simplification and Handholding; (b) Funding Support and Incentives; and (c) Industry-Academia Partnership and Incubation.

1.START-UP DEFINED

1.1 To avail the benefits under the GOI schemes, “start-up” has been defined as an entity that meets the following conditions – 

  1. Nature: Either a Private Limited Company or a registered Partnership Firm or a Limited Liability Partnership incorporated or registered in India not formed by splitting up, or reconstruction, of a business already in existence.
  2. Time since incorporation or registration: Not more than five years.
  3. Annual turnover: Not exceeding INR 25 crore in any preceding financial year.
  4. Activity: Should be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

 1.2 A start-up would typically include a business that 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. However, it would specifically exclude from its ambit the mere act of developing product or services or process which do not have potential for commercialization; or undifferentiated products or services; or products or services or processes with no or limited incremental value for customer or workflow.

1.3 In order for a start-up to be eligible for GOI schemes, it 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 funded by an Incubation Fund/Angel Fund/ Private Equity Fund/Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business; or
  • Be funded by GOI as part of any specified scheme to promote innovation; or
  • Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted
  • Not fall within the ‘negative’ list of funds that DIPP may publish for eligibility under this initiative
  • Not have completed 5 years since incorporation/registration
  • Have an annual turnover (as defined in the Companies Act, 2013) in any preceding financial year must not exceed INR 25 crores.

 1.4 An Inter-Ministerial Board would be set up by Department of Industrial Policy and Promotion (“DIPP”) to validate the innovative nature of the business for granting tax related benefits. It has been clarified that approval from the Inter-Ministerial Board shall not in any manner, limit or absolve the entity(ies) from any liability incurred in case of any misrepresentation/ fraud arising from submission of such application and/ or supporting such application.

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