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India has emerged as the third largest startup ecosystem in the world. Every day new innovators and young entrepreneurs are starting businesses on the basis of their unique thinking and technology. However, any new business requires capital, tax relief and government support to start and sustain it in the initial years. The ‘Startup India’ initiative of the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry of the Central Government is proving to be the biggest boon for new entrepreneurs. If your startup receives official recognition from DPIIT, you get many benefits ranging from 100% tax exemption for 3 years to 80% exemption in patent filing.
1. 100% exemption from income tax for 3 years (Section 80-IAC)
In the initial stages, it is a big challenge for startups to pay taxes along with earning profits. Eligible Private Limited or LLP Startups recognized by DPIIT are eligible for Income Tax Act. Section 80-IAC Under this scheme, you get the facility to claim 100% income tax exemption on your profits for 3 consecutive financial years.
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10 Year Flexible Window: Startup company can choose any block of 3 consecutive years as Tax Holiday within the first 10 years from the date of incorporation.
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Terms and Procedure: For this the startup has to obtain approval from the Inter-Ministerial Board (IMB). The company can use this saved tax capital for its business expansion, new appointments and Research and Development (R&D).
2. Huge savings of up to 80% in patent, trademark and IPR filing fees
Innovation and Intellectual Property Rights are the most valuable assets of any tech or product startup. But the legal and government fees for patent and trademark filing are quite expensive. The government has made it very accessible and affordable for DPIIT recognized startups.
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Fee waiver up to 80%: Direct subsidy of 80% in patent application fee and 50% rebate in trademark filing fee is provided.
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Free Legal Aid (Facilitators): The services of Patent and Design Facilitators empaneled by the Government are provided completely free of charge, with their professional fees paid directly by the Government of India.
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Fast-track Examination: The examination of patent and trademark applications of these startups is completed in much less time on fast-track mode compared to normal applications, thereby increasing investor confidence faster.
3. Preference in government tenders: Exemption from EMD and previous turnover/experience.
To participate in traditional government tenders, companies are required to have huge turnover and track record of last 3 to 5 years, which was impossible for any new startup to meet. But these rules have been completely changed for DPIIT recognized startups.
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Relaxation in prior experience and turnover: Startups get complete exemption from the conditions of ‘Prior Turnover’ and ‘Prior Experience’ in the tenders issued by the Government e-Marketplace (GeM Portal) and all Central Ministries/Public Undertakings (PSUs), provided they meet the technical specifications.
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Exemption from Earnest Money Deposit (EMD): Earnest Money Deposit (EMD) or bid security to be deposited at the time of filling the tender is also completely waived. With this, startups can directly get big government projects without any financial block.
4. Historic relief on angel tax and fund raising (Section 56(2)(viib))
When startups raised funds from angel investors or venture capitalists at a premium higher than the fair market value (FMV) of their shares, they became liable to pay huge ‘angel tax’ on that excess amount.
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Complete exemption from section 56: Startups get exemption from the stringent provisions of section 56(2)(viib) through DPIIT recognition and Form-2 declaration.
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Investors’ confidence increased: With the removal of angel tax uncertainty, domestic and international angel investors, family offices and high-net-worth individuals (HNIs) are easily attracted to inject seed and pre-series funding into startups without the fear of any tax notice.
5. Seed Fund Scheme and ‘Fund of Funds’ support of ₹10,000 crore
To ensure that no great idea dies due to lack of capital, the government has created several financial support mechanisms that are available only to DPIIT certified startups.
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Startup India Seed Fund Scheme (SISFS): Under this, grants up to ₹20 lakh and soft loans/convertible debentures up to ₹50 lakh are given through incubators for proof of concept (PoC), prototype development, product trials and market-entry of innovative ideas.
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Fund of Funds for Startups (FFS): The money is channeled from the ₹10,000 crore corpus managed by SIDBI to SEBI-registered Alternative Investment Funds (AIFs), which then invest in these recognized startups as equity funding.
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Credit Guarantee Scheme: Easy loan facility is also provided through Credit Guarantee Trust Fund for obtaining loans from banks and non-banking financial companies (NBFCs) without any collateral.
Eligibility for DPIIT Recognition and how to apply?
To get DPIIT recognition your company has to fulfill some basic conditions:
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The company should be formed as a private limited company, registered partnership firm or limited liability partnership (LLP).
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Not more than 10 years should have passed from the date of incorporation/registration of the company.
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The total annual turnover of the company should not have exceeded ₹100 crore in any financial year since incorporation.
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Business should have high potential for newness, innovation, development of products or processes and employment generation or wealth creation.
The entire application process is digital and free. entrepreneurs directly Startup India Portal (startupindia.gov.in) You can apply by entering your company’s CIN/LLPIN, PAN card, directors’ details, website/pitch deck and a brief description of the innovation. Usually, once all the documents are found to be in order, the official DPIIT Recognition Certificate and tax exemption related forms are issued online within 48 to 72 hours.