Recognition as a start-up by the DIPP is required to get various concessions, such as reduction in patent application fees, fast-tracked patent process and even a tax holiday. The earlier restrictive definition had left out many entities who were not technology-centric. However, investors, start-ups and legal experts do add that the amended definition is ambiguous.
Under an earlier notification of the DIPP, one of the conditions to qualify as a start-up was that the entity should “be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property”. This definition stands amended by the DIPP in its notification dated May 23. Now entities having “a scaleable business model with a high potential of employment generation or wealth creation” could also qualify for recognition as a start-up by the DIPP”.
Sharda Balaji, Founder of Novo Juris Legal, a law firm, says, “This expansion in definition will give a chance to entities in the non-tech space to apply to the DIPP. The moot issue is how will the criteria of ‘high’ employment or wealth creation be determined? The online process of application via an app or DIPP’s portal is also useful.”
Sanjay Swamy, Managing Partner, Prime Venture Partners, says, “These relaxations are welcome. However, employment generation or wealth creation is subjective and specific to each startup and the business it is in. The government needs to clarify if it will be assessed on a case-to-case basis or will there be some benchmarks.”
Krish Subramanian, Co-Founder and CEO, ChargeBee, a software platform start-up that has raised funding from Tiger Global and Accel Partners, points out, “Business in new-age technologies like artificial intelligence, analytics, cloud, et al, have a non-linear growth scale.”
Subramanian added, “In the early stages, we need people but once we hit a certain threshold, we don’t have to add more people for incremental revenues. That is the efficiency that startups tap into -incremental revenues with lesser staff. Expecting substantial employment generation could be difficult from such start-ups. The policy needs to be drafted considering the limitations of these new-age technologies. There is ambiguity on what the government expects in terms of employment generation or wealth creation, which needs to be addressed.”
The DIPP has also extended the period of existence for qualifying as a startup. An entity will be considered as a startup if it is incorporated not prior to seven years (or 10 years for those in the biotechnology sector). Under the earlier notification, the business entity was required to have completed five years or less from the date of its incorporation.
As earlier, the legal structure of the entity can be a private company, a partnership firm or a limited liability partnership. There is also no change in the turnover criteria, which must not exceed Rs 25 crore for any of the financial years since incorporation.
The Finance Act, 2016 has made provision for startups to get income tax exemption for three years in a block of five years, if they are incorporated between April 1, 2016 and March 31, 2019. The Budget 2017-18 has increased the period to three years in a block of seven years. According to official statistics, 932 entities have been recognised as start-ups till date by the DIPP. Of these, 23 have been approved for availing tax benefits by the inter-ministerial committee as of early May.
Source: Times of India