Entities which have a measurable business in terms of high employee engagement or revenue generation are now eligible to be recognized as a startup.

Previously if an entity’s activities are based on innovation and technology then only it was considered as a startup by DIPP (Department of Industry Policy and Promotion).

Recogniton by DIPP is important

Since, it is important to be recognized as a startup by DIPP for owning various concessions like fast-tracked patent process, tax holiday, and patent application fees. And the previous definition had eliminated various entities that weren’t technology based activities. Notwithstanding, financial legal experts, startup and capitalists do include that the altered definition is uncertain.

New strategy will help non-tech starup

Founder of a law firm, Novo Juris Legal, Sharda Balaji said that, “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”.

Subjective of business

Sanjay Swamy who is the managing partner at Prime Venture Partners said that, “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”.

Tech startup has Non-linear growth

CEO and cofounder at ChargeBee, a software startup company that has got a fund by Accel partner and Tiger Global, Krish Subramanian said that, “Business in new-age technologies like artificial intelligence, analytics, cloud, et al, have a non-linear growth scale”.

What CEO of ChargeBee said

“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 startups. 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.”

Qualifying period of startup

The DIPP has enhanced the time period for qualifying as a startup. If an entity is not incorporated earlier than 7 or 10 (for biotechnology sector) years, then it will be considered as a startup. According to previous notice, any business entity has to complete maximum five years from the date of notification.

Previous legal structure

Previously the legal structure of the company may be an associated company, private company or any limited authority partnership. Also, there is no change in turnover criteria with the special attention that it would not cross Rs. 25 crore for any of the financial year since joining.

Startup can get tax exemption

According to the Finance Act, 2016, startups can get income tax exemption for 3 years in section of five years, only if they are established amid April, 2016 to March, 2019.

As per official insights, 932 elements have been perceived as new businesses till date by the DIPP. Out of these, 23 have been affirmed for acquiring tax benefits by the inter-ministerial committee starting at early May.