9 June, 2017
The Department of Industrial Policy and Promotion (“DIPP”) vide its notification dated May 23, 2017 has amended the definition of “Startup” (“Startup Notification”). The Startup Notification is in supersession of the previous notification dated February 17th, 2016. The Startup Notification expands the definition of the term “Startup”, thereby enabling additional number of entities to avail this benefit.
The principal amendments, made to the extant laws, by the Startup Notification are as follows:
- An entity shall be considered as a Startup upto 7 (seven) years from the date of incorporation/ registration. This time period was previously 5 (five) years. Further, for entities engaged in business in the biotechnology sector this period shall now be 10 (ten) years from the date of incorporation/ registration. The entity shall cease to be a start up on expiry of the aforementioned time period or if its turnover for any previous year exceeds INR 25,00,00,000 (Rupees Twenty-Five Crores).
- The Startup Notification also brings entities with “a scalable business model with a high potential of employment generation or wealth creation” within the scope of the definition of a “Startup”.
- The Startup Notification simplifies and eases the registration requirements for entities which seek to avail the benefits available to “Startup’s”. This has been achieved by revoking the requirement to submit a letter of recommendation/ support/funding from an incubator/angel investor/ having a patent filed and published with the Indian patent office.
In addition, the notifications has also prescribed conditions for a Startup to avail tax benefits under the Income Tax Act, 1961, which includes obtaining a certificate of an eligible business from the Inter-Ministerial Board of Certification as constituted by the Department of Industrial Policy and Promotion from time to time.
This is a welcome move as it takes into account the long gestation period faced by Startup’s. Further, the expansion of the definition and the easing of registration requirements will enable a larger number of entities to avail the benefits of the Startup initiatives in the country.
In furtherance of the above appropriate amendments to statutes and regulations such as the Income Tax Act, 1961 and the Foreign Exchange Management Act, 1999 will need to be undertaken to give effect to the revised definition of the term “Startup” for any entity to avail of the benefits under such regulations.
For further information, please contact:
Sameer Sibal, Partner, P & C Legal
sameer@pclegal.net
