Indian startups slogging day and night to make their businesses a success have a huge reason to celebrate. Yesterday, in a notification sent out by the Department of Industrial Policy and Promotion (DIPP), the Indian government announced that it has made some minor changes in the definition of startups, according to which now an entity will be recognised as a startup up to seven years instead of the previous five years rule. For startups working in the biotechnology sector, this period has been extended up to 10 years.
The extended time period means that Indian startups will be able to avail the benefits of the Modi government’s Startup India Initiative for up to seven years, as against the five years earlier.
In addition to the extended time period, the new startup definition requires an entity to be incorporated as a private limited company, or a partnership firm, or a limited liability partnership. Besides, its turnover should not have crossed Rs 25 crore for any of the financial years since its registration.
Further, in order for an entity to be qualified as a startup it has to be working towards, “innovation, development, or improvement of products or processes or services”, or it should be a scalable business with potential to generate huge employment. This means, entities that have taken birth by splitting up or restructuring existing business will not make the cut to be called as startups.
An entity can only be a startup if it is working towards “innovation, development, or improvement of products or processes or services”, or if it is a scalable business with a high potential to generate employment, the notification said.
The DIPP notification further explained that an Innovation shall be considered from a domestic standpoint. This means, the basic activity of developing products or services or processes which do not have any potential for commercialisation would not make a business eligible to be called as a startup. The products, services or processes being claimed as innovative by an entity should not be undifferentiated, or have no or limited incremental value.
The new startup definition comes about ten days after an ET report broke the news that the government is considering introducing a new rule for Indian startups to become eligible for the Startup India programme and avail its benefits. The startups might soon be required to declare how many jobs they would be creating for Indian citizens through their businesses.
Apart from innovation, the government is now looking for startups that can help it achieve its job creation target that it has set till its term end in 2019.
According to Nasscom, startups are expected to create 250,000 jobs in India by the year 2020, a figure which is much above the 80,000 figure right now. Once the new startup definition comes into play, the 250,000 jobs figure could be expected to increase exponentially.
How To Be Recognised As A Startup?
In order to be officially recognised as a startup, an entity is required to fill out an online application for the same over the mobile application and web portal set up the Department of Industrial Policy and Promotion. In addition to their applications, they will also be required to attach registration certificates and some other relevant details. Startups will also have to submit a small write-up explaining the nature of their business, highlighting how they plan to work towards innovation, deployment and employment generation.
How Startups Will Be Benefited?
Since January, 2016, when the Startup India movement was launched by the Indian Prime Minister Narendra Modi, the DIPP has successfully recognised a whopping 798 applications as startups. Entities incorporated after April 1, 2016, and before April 1, 2019 will be eligible to avail tax benefits under the Startup India Action Plan.