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Startup Recognition Certificate - Details and Benefits

What is StartUp Recognition Certificate?

StartUp recognition certificate or DPIIT StartUp recognition is proof of identification from the Government of India. They provide a DIPP number (Department of Industrial policy and promotion) which helps the StartUp to register in the StartUp India scheme where they can enjoy a number of benefits.

Eligibility for acquiring recognition

Turnover should be less than INR 100 Crores in any of the previous financial years since its incorporation. The StartUp should be incorporated as a private limited company or a partnership firm or a limited liability partnership. An entity shall be considered and recognized as a StartUp up to 10 years from the date of its incorporation. The StartUp should be working towards innovation/ improvement of existing products, services, and processes and should have the potential to generate employment/ create wealth. An entity formed by splitting up or reconstruction of an existing business shall not be considered a "StartUp”.

A Start-Up that clears all the above eligibility will be given “DPIIT StartUp recognition.” These startups can then avail following benefits:-

Benefits of StartUp Recognition Certificate

1. Tax exemption

  • Tax exemption under section 80 IAC (After getting approved for this, the StartUp can avail tax holiday/exemption for 3 consecutive financial years out of its first 10 years since incorporation)

  • Tax exemption under section 56 of the Income Tax Act (Angel Tax).

2. Self- Certification

  • Self- Certification compliance can be done for 6 Labour Laws and 3 Environmental Laws.

  • For labor laws, no inspections will be conducted for 5 years. Inspection may be done only on receipt of a credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.

  • For environment laws, Startups which fall under the ‘white category’ (i.e having Pollution Index score up to 20) would be able to self-certify compliance and only random checks would be carried out in such cases.

3. Patents

  • Startups shall be provided an 80% rebate in filing patents

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

  • 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.

  • The panel of facilitators shall be assisting StartUps in filing IP applications.

4. Easy winding up

  • 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 be in charge of the company. 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.

5. Easy Public Procurement Norms

  • Exemption from the criteria of prior experience in the manufacturing sector.

  • Exemption from submitting Earnest Money Deposit (EMD) or bid security while filling government tenders.

  • Startups can list your product on Government e-Marketplace. Government e-Marketplace (GeM) is an online procurement platform and the largest marketplace for Government Departments to procure products and services.

Eligibility for section 80 IAC Tax exemption

Apart from basic eligibility criteria, the start-up

Should have been incorporated after 1st April 2016.

Eligibility for section 56 exemption (Angel Tax)

Apart from basic eligibility criteria,

The aggregate amount of paid-up share capital and share premium of the StartUp after the proposed issue of a share, if any, does not exceed INR 25 Crore.

Concept of Angel Tax?

Angel tax is levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares is seen in excess of the fair market value of the company. The investment in excess of fair value is characterized as ‘Income from other sources and the tax imposed on it is known as Angel Tax since it largely affects angel investors investing in StartUp. The objective of angel tax is to ensure that money laundering does not take place when angel investors invest in a particular StartUp.

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