‘Startup’ has finally been defined by the Indian Government!

definition of a startup

Startup India, Standup India program was kickstarted by PM Narendra Modi last month. While there were a lot of things and norms that were released to aid startups, the definition of the word ‘startup’ was open to interpretation. There was a lot of speculation that many people will try to misuse the definition of the word to claim benefits that will be provided to startups.

Finally, the Indian Government has defined the word ‘startup’ to put an end to all the speculation.

In a notification released on 17th February 2016 by the ministry of Commerce and Industry, the word startup has been defined. The notification clearly states, what all things make a company to qualify as a startup and avail the tax and other benefits.

The notification defines a company or an enterprise as a startup:

a) Up to five years from the date of its incorporation/registration,

b) If its turnover for any of the financial years has not exceeded Rupees 25 crore, and

c) It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;

The notification also clearly defined as to what will not be termed as a startup. One of them will be the formation of a new entity by splitting or reconstructing of an existing business.

startup definition by indian government for startup india stand up india

For the purpose of obtaining the tax benefits i.e. exemptions defined in the Startup India, Standup India plan, the startup will have to obtain a certificate from Inter-Ministerial Board of Certification consisting of:

  • Joint Secretary, Department of Industrial Policy and Promotion,
  • Representative of Department of Science and Technology, and
  • Representative of Department of Biotechnology.

The notification also defines how a company can go about the process of being recognized as a startup:A simple application will be made available on mobile application and the web portal of Department of Industrial Policy and Promotion which can be filled in along with one of the proof:

“A simple application will be made available on mobile application and the web portal of Department of Industrial Policy and Promotion which can be filled in along with one of the proof:

  • a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator established in a postgraduate college in India; ora letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or
  • a letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or
  • 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; or
  • a letter of funding of not less than 20 per cent 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; or
  • a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or
  • a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.”

The web portal and mobile application for the registration process are still a work in progress and no timeline is given by when they will be up and running.

This notification pretty much clears up the air about which company will qualify as a startup. How transparent the process of actually qualifying as a startup will be, remains to be seen.

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