Startup India Scheme, Benefits, Registration Process

In today’s era of entrepreneurship, where innovation meets passion, the Indian startup ecosystem is generating various creative ideas with a lot of determination. People are now more aware of the benefits of starting their own brand, with social media and TV shows such as Shark Tank boosting entrepreneurship in the country.

The government has also been taking several steps to boost startups in India as they significantly contribute to economic growth by creating job opportunities and introducing new technologies. For example, Apple, Google and Microsoft were all startups once and they are now transforming the world.

One groundbreaking initiative by the government for Indian entrepreneurs is Startup India. You can enjoy the benefits of this scheme if you have a new business or wish to start one. Read on to learn more about this exciting initiative.

What is Startup India?

India has a huge young population. According to the United Nations Population Fund’s State of the World Population Report 2023, the country has one of the largest youth populations in the world, with around 254 million individuals in the 15-24 year age bracket. Moreover, its sizeable student population and strong academic culture help promote innovation and an entrepreneurial mindset, ultimately boosting the startup culture.

With this in mind, the government rolled out the Startup India initiative in 2016, with a corpus of Rs. 10,000 crores. This scheme aims to promote startups, create job opportunities and generate economic wealth. It offers various benefits and incentives to startups, such as tax exemptions, funding support, fast-track patent applications, and simpler compliance regulations.

Startup India also provides mentorship, networking opportunities, and access to resources and facilities that can help entrepreneurs thrive in the country’s competitive business landscape. The initiative is broadly managed by a dedicated team that reports to the Department for Industrial Policy and Promotion (DPIIT), highlighting its importance at the governmental level.

Under the guidance of DPIIT, the Startup India team carries out a range of tasks, such as developing and executing strategies to attract investments, supporting startups with funding opportunities, and offering various incentives and benefits to these firms. They also coordinate with other government departments and agencies to streamline processes, remove hurdles, and ensure seamless support for startups.

Small Industries Development Bank of India (SIDBI) runs the Startup India loan scheme and is a dedicated financial institution that focuses on the growth and development of small and medium-sized enterprises (SMEs) in the country. SIDBI plays a pivotal role in assessing the viability of startup business models and providing them with the necessary financial support.

Through the Startup India loan scheme, SIDBI aims to address the funding gap that many startups face in their early stages. By offering financial assistance in the form of loans, startups can access the capital needed for various purposes such as product development, marketing, and operational expenses. This support not only helps such firms survive during their initial years but also enables them to expand and create employment opportunities.

Why was Startup India Established?

In the past, starting a company or business in India posed significant challenges, leading many businesses to relocate to other countries. With the introduction of the liberalisation programme in 1991, these limitations were substantially reduced by the government. However, in the process, certain measures were put in place to control and regulate the economy, including regulations such as Licence Raj, land permits, foreign direct investment plans, and investment clearances.

Take Licence Raj for example, which was a system where companies needed to obtain multiple licences and permits from the government to start operations. The aim was to ensure that businesses complied with certain regulations, maintained quality standards, and did not engage in illegal activities. However, while this system looked to protect consumers and ensure fair competition, it often resulted in bureaucratic red tape and corruption, thus hampering economic growth to an extent.

With the Startup India scheme, the government is aiming to eliminate such issues for startups in the country, such as complex regulations, and limited access to resources and support systems, thus helping position India as a global hub for innovation and technology.

Features of the Startup India Scheme

1. Financial Support

Startup India provides financial support to startups in various forms. These include:

• Fund of Funds scheme: This aims to support firms by providing them with access to venture capital funds managed by professional fund managers.
• Credit guarantee schemes: These help startups avail of loans and credit from banks and financial institutions, and help provide collateral-free loans and credit, reducing the financial burden and risk for these young companies.
• Government schemes: Startup India enables eligible firms to enjoy access to various government schemes and initiatives that provide grants, subsidies, and incentives. These schemes cover a wide range of areas such as research and development, intellectual property protection, marketing and branding, and infrastructure development.
  One such initiative is the Startup India Seed Fund Scheme, under which eligible companies can receive seed funding of up to Rs. 20 lakhs, which can help support activities such as market validation, prototype development, product trials, and more.

2. Government Support

New businesses require a significant amount of funds to set up and access to government support can help with collecting these funds. Typically, it is not easy to get government support, but under the Startup India scheme, eligible firms receive greater priority in getting government help without having prior experience.

3. Ease of Work

With the Startup India portal, the government has built a system where you can incorporate and register your startup, solve queries and more, which makes the process easy. Plus, you can register your startup from the portal online from anywhere, guaranteeing convenience. The Insolvency and Bankruptcy Bill passed in 2015 enables new startups to start operations within 90 days of initiation.

4. A Place to Network

Startup India gives startup owners amazing networking opportunities where they get to meet various startup stakeholders at a particular place and time. The government organises two yearly events – one for domestic companies and the other for international companies. Moreover, Startup India also arranges intellectual property awareness workshops and awareness campaigns.

5. Tax Exemptions Under Section 80 IAC

The scheme exempts startups from paying income tax for the initial three years based on the following criteria:

• The company must be registered with DPIIT
• The company must have started operations after 1 April 2016, since Startup India came into existence in 2016.
  Note that private limited companies and limited liability partnerships are eligible for tax deductions under section 80 IAC.

6. Tax Exemption Under Section 56

Section 56 is a provision in the Income Tax Act that exempts certain types of income from being taxed. This provision looks to encourage investment and entrepreneurship by providing tax benefits to individuals or businesses, including those that invest in eligible startups with a net worth of over Rs.100 crores or a turnover of over Rs. 250 crores (per Section 56 (2) of the Income Tax Act).

Eligibility for Startup India

The following types of businesses can apply under this scheme:

• Partnership organisations
• Limited liability partnership (LLP) enterprises
• Private limited companies.

The eligibility criteria for Startup India are as follows:

• DPIIT must approve the startup.
• The company must not be more than five years old.
• The annual turnover of the company must not be more than Rs. 25 crores.
• The startup owner will need to submit a reference letter from a start-up incubator.
• The firm must deal with unique products or services.
• The company must promote employment generation.
• The start-up should not have been established as the result of the dissolution of another business.

Documents for Registration Under Startup India

Here are the documents required to register your startup under the Startup India scheme:

• Certification of incorporation
• PAN card of the company
• MSME registration, GST registration, and trademark registration certificate, if available
• Company’s website or profile
• Details of the company’s directors
• Revenue details.

Startup India Application Process

Completing the application process is essential if you are looking to enjoy the scheme’s benefits. Follow these steps:

Step 1: Register your company as a legal entity, such as a partnership firm, private limited company, or limited liability partnership.

Step 2: Register your startup on the Shram Suvidha Portal of the Ministry of Labour and Employment.

Step 3: Obtain Department for Promotion of Industry and Internal Trade (DPIIT) approval, fill out the ‘Startup recognition’ form, and accept the terms and conditions.

Step 4: Upload documents such as the certificate of incorporation, PAN card, and patents. Ensure you upload the original documents to avoid penalties.

Step 5: Once you have completed the process, you will receive the Startup India registration number in around 48 hours.

Differences between the Stand-Up India Subsidy and Startup India

Like Startup India, the Stand-up India subsidy is an initiative launched by the government to support startups in the country. Fundamentally they have the same features, but each has different objectives and focuses on varying sections of society. Let’s take a look at some of the key differences:

• The Startup India scheme aims to support startups that do not have a high turnover and that meet the definition of a startup. In contrast, Stand-up India is a more specific SC, ST government loan scheme that focuses on the ST and SC classes as well as women entrepreneurs.
• The Startup India loan scheme gives eligible firms access to extra funding sources to help expand their business and also enables them to enjoy tax benefits. Stand-up India is more specific and provides SC/ST subsidy loans for business; it allows these sections of society as well as women entrepreneurs to apply for loans ranging from Rs. 10 lakhs to Rs. 1 crore.
• Only companies under five years old can apply for Startup India, while Stand-up India allows SC, ST, and women entrepreneurs to avail of SC/ST subsidy loans for business.
• While the Startup India loan scheme covers a maximum of 80% of a project’s total cost, the Stand-up India subsidy covers up to 75% of the total cost.
• Under the Startup India loan scheme, partnership firms, limited liability partnership enterprises, and private limited companies are eligible to get funding. On the other hand, Stand-up India provides loans only for greenfield projects, which means it should be the beneficiary’s first foray into the trading or manufacturing services segment.

Challenges Faced by Startup India

Here are some crucial challenges faced by this initiative:

• The government has set aside funds of Rs. 10,000 crores to utilise for startups in the next four years, which is a short-term plan and does not focus on the long-term growth strategies of startups.
• For the success of any business, it is important to hire a skilled workforce, but startups face a crunch here as they usually do not have sufficient funds in the initial stage.
• Startups often face higher chances of failure compared to established companies, primarily because they take swift action and generate their business model rapidly.

FAQs

Q. 1 What is the Startup India Scheme?

Ans: To promote the startup culture in India, the government launched an initiative known as Startup India in 2016. The main aim of this scheme is to provide better services, innovate new products and boost employment in India.

Q. 2 What is the government’s role in Startup India?

Ans: The government’s role in Startup India is to provide support and create an enabling environment for startups to thrive. It has launched various initiatives and programmes to promote entrepreneurship and facilitate the growth of eligible firms. These include:

• Funding support
• Incubation and acceleration support
• Intellectual property rights (IPR) protection
• Skill development and training programmes.

Q. 3 What is the income tax benefit under the Startup India loan scheme?

Ans: Companies registered under the Startup India loan scheme are exempt from paying income tax in the initial three years of operations. However, they will have to get a certificate from the Inter-Ministerial Board as well as invest in specific funds.

Q. 4 Can I avoid registering my startup under the Startup India scheme?

Ans: You cannot avoid registering your startup under the Startup India scheme as it is mandatory. You can complete the process easily online on the Startup India digital portal.

Q. 5 Can I build a network using the Startup India scheme?

Ans: Startup India allows startup owners to connect with other entrepreneurs and learn about their businesses. Every year, two networking events are held by the government, one for domestic companies and the other for international firms.

Q. 6 What is the basic requirement I must fulfil to register for the Startup India scheme?

Ans: To register for the Startup India scheme, your company should either be a private limited company or a limited liability firm, and it should not be more than five years old.

Q. 7 How long does the winding-up process take for startups in India?

Ans: According to the Insolvency and Bankruptcy Code of 2016, startups with a simple debt structure can be wound up in 90 days by filing for insolvency.

Q. 8 Is it easy to dissolve a startup in India?

Ans: As per the Indian government’s regulations, winding up a startup is easy and simplifies the reallocation of resources. This means you can easily dissolve your startup and use those resources in a better place, which encourages entrepreneurship.

Q. 9What are the eligibility criteria to fulfil for exemption under Section 56?

Ans: There are three basic criteria that you need to fulfil for exemption under Section 56:

• Your company should either be a private limited company or a limited liability company.
• The Department of Promotion of Industry and Internal Trade (DPIIT) should recognise your company.
• You must be investing only in specific sectors and not in immovable properties.
• Evaluators must assess your eligibility based on your investments, turnovers, loans, and capital investments.

Q. 10 For how long does recognition as a startup stay valid under the Startup India scheme?

Ans: Recognition as a startup under the Startup India scheme is valid for a period of 10 years from the date of the firm’s incorporation. However, it is important to note that these firms will have to fulfil certain criteria and comply with the ongoing requirements of the scheme to maintain their recognition status. It is advisable to regularly check for updates and guidelines provided by the government to ensure continued eligibility.

Check out more Government Schemes 

MSME Loan Schemes in India

Savings Schemes in India

PMEGP Scheme/Loan

SATAT Scheme

Jan Samarth Scheme

Cent Kalyani Scheme

RoDTEP Scheme

Stand Up India Scheme