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The Department of Industrial Policy and Promotion has come out with a definition for a startup in India. Accordingly, an enterprise is considered a startup up to five years of its incorporation and if its turnover has not exceeded Rs 25 crore for the financial years.

The DIPP also said that a startup will have to work towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

The DIPP clarified that an existing business which is split up or reconstructed cannot be considered a startup.

The government added that to get the tax benefits announced during the Start Up India, Stand Up India event will have to be certified by an inter-ministerial committee consisting of the Joint Secretary, Department of Industrial Policy and Promotion, a representative of Department of Science and Technology, and representative of Department of Biotechnology.

To be recognized by the government, startups will have to fill out an application on the DIPP’s website or mobile app. Any one of the following documents may be submitted for the application:

– A recommendation with regard to innovative nature of business, in a format specified by DIPP from any Incubator established in a postgraduate college in India.

– Or a letter of support by any incubator which is funded from Government of India or any State Government as part of any specified scheme to promote innovation

– A recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator recognized by Government of India;

– A letter of funding of not less than 20%  in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business. Department of Industrial Policy and Promotion may include any such fund in a negative list for such reasons as it may deem fit

– A letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation

– A patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.

MediaNama’s take

The government’s move for recognizing a startup is welcome. The rules are pretty straight forward and can cater to the broad number of startups which are coming in. The cap on turnover ensures tax exemptions only goes to startups which need it and promote growth in the ecosystem and not to companies which are already established (we’re looking at you Flipkart, Uber etc who still call yourselves startups despite billion dollar valuations). That said, the more important rules that need to come, which will provide clarity for exits, are the Insolvency and Bankruptcy Bill.

Download: DIPP rules here