The Startup India Scheme is an initiative by the government of India aimed at encouraging the development and innovation of products and services and the creation of employment opportunities across the country. One of the goals of the scheme has been simplifying how to register a startup in India by reducing regulatory burdens and allowing them to focus on their core business while keeping compliance costs low and also providing multiple benefits, aside from the massive networking opportunities provided by the bi-annual startup festivals held by the Government of India both domestically and internationally.

Benefits of Startup India Scheme

Income Tax Benefits

Startups are now given an income tax exemption for a period of three years from the date of incorporation provided they are certified as such by the Inter-Ministerial Board of Certification. Also, upon obtaining recognition from the DPIIT (Department for Promotion of Industry and Internal Trade), and if the aggregate amount of paid-up share capital and share premium of the startup after the proposed issuing of shares, if any, does not exceed INR 25 Crore, the startup will also be exempt from capital gains tax under Section 56 of the Income-tax Act,1961-2014.

Financial Benefits

Startups are given a rebate on intellectual property rights (IPR) costs of 80% on patents and 50% on trademarks and are actively assisted by government-provided facilitators who aid with protecting and commercializing the IPRs. The examination and disposal of the IPR applications are also fast-tracked. The government will also pay the fees of the facilitators.

Registration Benefits

Startup registration in India is still extremely complex, with incorporation and registration being considered more difficult than the actual running of a business due to the arduousness of the requirements. Under the scheme, the Startup India Hub, a portal to create networking opportunities and assistance for startups, has been created with a problem-solving window being provided by the government under the scheme.

Funding Benefits

Certain states provide seed funding to startups certified under the scheme. To know about your state and the requirements in place, click here.

Regulatory Benefits

Under the Startup India Scheme, startups are allowed to self-certify compliance for six labour laws and three environmental laws through a simple online procedure. For labour laws, no inspections will be conducted for a period of 5 years unless there is a credible and verifiable complaint of violation, filed in writing, and approved by an official who is at least one level senior to the inspecting officer. In the case of environmental laws, startups that fall under the ‘white category’ (as defined by the Central Pollution Control Board) would be able to self-certify compliance, and only random checks would be carried out in such cases

Public Procurement Benefits

Once your startup is certified by the Inter-Ministerial Board of Certification and a DIPP (Department of Industrial Policy and Promotion) number has been issued to you, you can get listed as a seller on the Government of India’s e-procurement portal – Government e-Marketplace – and have the inside track on all Government of India Ministries/Departments/Public Sector undertakings subject to your ability to meet quality and technical requirements. Certified startups will also be entitled to exemptions on the earnest money deposit in your bid as well as in terms of the requirements regarding prior turnover and experience.

Faster Exit Benefits

The government has initiated provisions making winding down operations easier by appointing an insolvency professional to fast-track the closure of operations and facilitate the sale of goods as well as paying creditors, all while recognising limited liability. Startups with a simple debt structure or those meeting the criteria outlined under this scheme will be able to achieve a complete exit within 90 days.

Checklist under the Startup India Scheme

An organisation will be eligible under the scheme if

  • It is incorporated as a private limited company or registered as a partnership firm or a limited liability partnership in India
  • It has been less than ten years from the date of its incorporation/registration
  • Its turnover for any of the financial years since incorporation/registration has not exceeded INR 100 Crores
  • It should possess a DIPP number
  • It is funded by an incubation fund, angel fund, or private equity fund that is registered with the Securities and Exchange Board of India (SEBI)
  • It has obtained a patron guarantee from the Indian Patent and Trademark Office
  • It has a recommendation letter from an incubator
  • Capital gain is exempt from income tax
  • It is working towards the innovation, development, or improvement of products or processes or services, or if it is a scalable business model with a high potential for employment generation or wealth creation

Process to Register under the Scheme

The most important step is to register the company as one of only three possible types of entities:

  • Private Limited Company, registered under the Ministry of Corporate Affairs and regulated by the Companies Act, 2013 and the Companies Incorporation Rules, 2014. This type of structure allows directors to be separate from the shareholders and provides limited liability for the shareholders with certain restrictions on ownership. To know more about registering a private limited company, please click here..
  • Partnership Firm, registered under the partnership firm act, is a structure where the founders are subject to a partnership deed with the conditions outlined and registered with the registrar of firms. Under this structure, the partners have unlimited liability, which means they are personally liable for the debts of the business. However, low costs, ease of setting up, and minimal compliance requirements make it the easier option for businesses that are unlikely to take on any debt. To know more about registering a partnership firm, please click here..
  • Limited Liability Partnership (LLP) registered under the Limited Liability Partnership Act, 2008 is a structure wherein a partnership firm takes on the characteristics of a private limited company in terms of facilities such as limited liability and transferability. The LLP structure was introduced into India in 2009 to provide a form of business that is easy to maintain and to help owners by providing them with limited liability. To know more about registering an LLP, please click here.

Once registered, click here and follow the steps outlined to be recognised by the DPIIT as a startup under the Startup India Scheme, including uploading whatever documents they might request and providing the information requested, such as registration/incorporation number, representatives, directors/partners, address, date of incorporation, and so on.

FAQs on Startup India Scheme

What is the legal definition of a startup in India?

A startup defined as an entity that is headquartered in India, which was opened less than 10 years ago and has an annual turnover of less than ₹100 crores (US$14 million).

How long does it take for a startup to be successful?

Most small businesses take at least 2 to 3 years to be profitable and become truly successful once they’ve hit the 7 to 10-year mark. Most small businesses take years to be successful, despite the overnight success of companies like Facebook.

How much time is needed for setting up a private limited company in India?

If you have all the documents in order, it will take no longer than 15 days. However, this is dependent on the workload of the registrar.

What is the eligibility of designated partners/partners in an LLP?

Any individual, or even a company or an LLP, can become a partner. However, only an individual can become a ‘designated partner’ in an LLP.

What kind of start-ups commonly register LLPs?

Typically, only start-ups that will not be looking for venture capital funding register LLPs. This is because venture capitalists only invest in private and public limited companies.

Is it cheaper to run an LLP than a private limited company?

Yes, it is much cheaper to run an LLP than a private limited company, particularly in your early start-up days. This is because many compliances, such as an audit, apply to LLPs only after their turnover is sizable. Most LLPs spend about half as much as a private limited company in their first year on registrations and compliance work.

Which industry is the best in India for a startup?

According to the Economic Times, as of 2021, the top-earning businesses in India are from the financial services, transport and support services, aerospace, defence, and security services, technology services, and health and education services.