It has been a year now since Prime Minister Narendra Modi launched the Startup India scheme on the 16^th of January, 2016. However, the response to the scheme has been lukewarm.  As per certain media reports, less than 1,500 startups have so far applied for registration under the scheme, around 500 were recognised as startups, and only about 100 became eligible for tax benefits.

We can be certain that these were not the numbers that the government had in mind for the provision of benefits, especially with a scheme of this scale, a pet project of the Prime Minister himself that was first coined in his Independence Day speech of 2015, heard across the country and even abroad.

A brief background

The entities registered as startups are primarily eligible for the following benefits:

1. Income Tax benefits for three consecutive years in the first five years of the startup under section 80-IAC of the Income Tax Act, 1961
2. Exemption from income tax on receipt of investment at a price higher than the Fair Market Value (FMV)
3. Access to Rs 10,000 crore fund of funds
4. Exemption from capital gains on sale of shares of a registered startup
5. Self-certification under nine different labour laws
6. Fast tracked and up to 80 percent rebate in patent filing
7. Benefits under public procurement regarding prior experience and turnover

To avail of these benefits, the startup needs to have the following:

1. The startup should be less than five years old, and for income tax benefits, it must be incorporated on or after 01^st April, 2016
2. It should be incorporated as a Private Limited Company, LLP or registered firm
3. Turnover in any year should not exceed Rs 25 crore
4. The entity should not be formed by the splitting or restructuring of an existing firm
5. It should be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property
6. For tax benefits, the startup should obtain a certificate of eligible business from an inter-ministerial board after getting a recommendation from a recognised incubator/VC

Problems faced

As a result of so many ifs and buts, till date, only a handful of startups, approximately 100, have been able to get themselves recognised as eligible businesses to claim tax benefits under the Startup India scheme.

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