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DIPP amends the definition of a startup, benefits up to 7 years

The Department of Industrial Policy and Promotion (DIPP) amended the definition of a startup and will now consider an entity up to seven years from the date of its incorporation or registration. Earlier, an enterprise was considered a startup up to five years of its incorporation. This was taken into account of the long gestation period in establishing startups.

However, in the case of biotechnology startups, the period will be up to 10 years from the date of incorporation.

In addition, the DIPP also mentioned said startups will not require a letter of recommendation from an incubator or an industry association for either recognition or tax benefits under Start-up India. But the DIPP added certain riders and said that startups will have to include a scalable business model and must have the potential of employment generation or wealth creation.

Note the cap of Rs 25 crore turnover will still remain. The DIPP rule, where an existing business which is split up or reconstructed cannot be considered a startup, still holds.

Prime Minister Narendra Modi launched the Startup India initiative in January 2016, one of its main aim was to create employment, but it was not included as amandatory requirement. However, the programme has not yet taken off in a big way, as only 10 startups have been approved for availing of the tax benefit by an inter-ministerial board. DIPP has recognised 798 applications as startups but not given them the tax benefit, as indicated by this Economic Times report.

MediaNama’s take

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There is ambiguity in what the government expects from startups in terms of employment. There are many technology startups who work in the field of automation, analytics and artificial intelligence. These companies will require some employees to be hired in the initial stages, but once they reach a threshold, they will find the requirement of job creation difficult.

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