Benefits of DPIIT Recognition for Startup

In the previous piece, we discussed the DPIIT recognition of Startups and how startups can get themselves registered. We delved into the concept of startup specifying what constitutes startup as per the definition under DPIIT. And finally, the documents required for filing for registration. In this piece, we will look into the benefits that DPIIT recognition will provide to startups.

Startup India: 80 IAC Tax exemption

Post getting recognition a Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.

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Eligibility Criteria for applying to Income Tax exemption (80IAC):

• The entity should be a recognized Startup
• Only Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
• The Startup should have been incorporated after 1st April, 2016

Startup India: Tax Exemption under Section 56 of the Income Tax Act (Angel Tax)

Post getting recognition a Startup may apply for Angel Tax Exemption.

Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:

• The entity should be a DPIIT recognized Startup
• 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.

Effective regulatory compliance

There are issues concerning maintaining multiple regulatory requirements under different laws such as labor laws, environmental laws which are time-consuming where new and small businesses lack much expertise to comply with such regulatory issues. For the startup, it is required to get into simplified procedures for a friendly environment. With such recognition, the startups will be able to self-certify themselves labor and environment laws. No inspection will be done for three years; nevertheless, the inspection can be done on a credible report of violation approved by one level senior to the inspecting officer.  The Startups may self-certify compliance in respect of the following:

Labour Laws:

• Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
• The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
• The Payment of Gratuity Act, 1972
• The Contract Labour (Regulation and Abolition) Act, 1970
• The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
• The Employees’ State Insurance Act, 1948

Environment Laws:

• The Water (Prevention & Control of Pollution) Act, 1974
• The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
• The Air (Prevention & Control of Pollution) Act, 1981

Easy exit

There are chances that the startup might fail, which it is also important to provide a simple process for winding up the business. The startup can easily take back the resources which they have invested, in case of failure. This is important because such a quick and simple process can help the startup to invest in another place. There are issues with startups, where, in case of failures, they are stuck in a lengthy exit process. The Insolvency and Bankruptcy Code 2016 provides a simple process for startup winding with a simple debt structure. Those meeting certain conditions may be wound up within 90 days of filing application of fast track winding up.

Public Procurement

For public procurement, the government excludes the startups from previous experience norms. It will help the startup for easy procurement in government tender. Nevertheless, the startup needs to show that they have capabilities and have manufacturing facilities in India.

Moreover, in case of funds allocation, the startups will be eligible for funding from the Alternative Investment funds. More so, they can also avail INR 2000 Crore credit guarantee through the National Credit Guarantee Trust Company or SIDBI over 4 years.

Author: Saransh Chaturvedi an associate at IP And Legal Filings,  in case of any queries please contact/write back us at support@ipandlegalfilings.com.