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Now Government wants to encourage Startups to Innovate

After the announcement made by the Prime Minister in January at Vigyan Bhawan the Government has now drawn a roadmap for recognizing and rewarding the Startups that are working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. In his speech the prime minister said that India does not have IP (Intellectual Property) but it has YP (Youth Property) and he wants to convert YP to IP. In line of the announcements earlier made the Finance Minister has announced 3-year Income Tax holiday in the Union Budget for Startups, though such Startups shall have to pay a minimum alternate tax at 18.5%. Now the big question is who will be considered as a Startup?

According to a notification recently released by the Government an Entity (Only a Private Limited Company/ A Registered Partnership Firm/ A Limited Liability Partnership firm) will be considered a Startup provided it satisfies the following three conditions (1) if it has not passed Five years from Date of Incorporation or Date of Registration (2) if its turnover for any of the financial years has not exceeded Rupees 25 crore (“turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year) and (3) entity is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. An entity shall cease to be a startup on completion of five years from the date of its incorporation/registration or if its turnover for any previous year exceeds Rupees 25 crore. Startup India Stand-up India (SISI) encourages Startups to develop a new product or service or process, or significantly improve existing product or service or process, to create or add value for customers or workflow.

The government has provided six alternatives for the startups to seek recommendation from a forum that certifies them for requirement no. 3, they are:

  1. Incubator established in a postgraduate college in India;
  2. incubator which is funded (in relation to the project) from Government of India or any State Government;
  3. any Incubator recognized by Government of India;
  4. any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI
  5. Government of India or any State Government themselves for specified scheme to promote innovation; and
  6. Startups can submit a patent filed and published by the Indian Patent Office as a proof

 

Once this recommendation is uploaded to SISI App the government will review and recognize the entity as Startup. Fake applications may face a penalty of 50%.

The scheme weeds out me-too startups that are developing products or services or processes which do not have potential for commercialization, or startups with undifferentiated products or services or processes services or processes with no or limited incremental value for customers or workflow would not be covered under this definition. Now who would decide whether the startups are reinventing the wheel or they are engaged in tech breakthrough?

The scheme also promotes filing of Patents and has line-up a reduced Patent filing and Examination fee of just Rs. 5600 for startups. Indeed, the Government also empanelled Patent Agents as facilitators who will assist Startups to file Patents and these facilitators will be reimbursed by the government for their professional fee.