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Highlights of the Startup India Standup India Scheme

I am sure you are aware of the “Start Up India Stand up India” Scheme launched by Department of Industrial Promotion and Policy (DIPP). The scheme has started accepting applications since the beginning of this Financial year from entities (Companies, LLPs and Partnership Firms) to be recognized as Startups via its website and Mobile Application. Already about 88 entities have been registered as of 17th June.

A Patent application filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted by the Startup can be used as a registration document for the scheme by such startup. The other alternatives to a Patent document are, documents that endorse the innovative nature of business of the startup including:

  1. a recommendation from any Incubator established in a postgraduate college in India; or
  2. a letter of support by any incubator which is funded govt (Central or State) as part of any specified scheme to promote innovation; or
  3. a recommendation, from any Incubator recognized by Government of India; or
  4. a letter of funding of not less than 20% in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI
  5. a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation.

Stratjuris Partners has already advised companies that have been recognized as Startup under the scheme.

Some of the Highlights of the Startup India Standup India Scheme are:

Startups registered under the scheme must not pay Angel Tax (effective 14.06.16)

Under Section – 56 of the Income-tax Act, any consideration for issue of shares exceeding the fair market value of the shares is considered as to be Income from other sources except where the consideration for issue of shares is received from VC fund or a VC Company or from any person as may be notified by the Central Government. The Government has now notified that any Person resident in India (read Angel Investor) when makes investment by purchase of shares of a “Startup” for a consideration exceeding fair market value, such consideration will no longer be taxed at the hands of Startup.

Startups registered under the scheme may claim 100% of deduction in Profit and Gains for the purpose of computing Income under Income Tax Act (Effective 01.04.2017)

Under Section 80-IAC of the Income Tax Act, a registered startup can claim a deduction of an amount equal to 100% of the profits and gains derived from eligible business for 3 consecutive assessment years (out of five years beginning from the year in which the eligible start-up is incorporated). The "eligible business" means a business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

Reduced Patent Fees and Expedited Examination (Effective 16.05.2016)

Under Rule 24 C of the Patent Rules, a registered Startup can apply for Early Publication and Early Examination of his Patent application. This reduces the time taken for Publication from 18 months to 1 months and time taken for examination from 5 years to 1 year.