On April 17, 2015, the Ministry of Commerce and Industry released a notification to define ‘startups’. There were many points that were consistent from the speech given by Prime Minister Narendra Modi during the unveiling of the ‘Startup India, Standup India’ policy. According to the government notification, an entity will be identified as a startup.
If you are planning to structure a part of your business into a separate entity, it won't be called a startup as it already forms a part of a registered entity.
In order to obtain tax benefits, one has to obtain a certificate from the Inter-Ministerial Board of certification. The board consists of the following:
The notification describes the word entity as a private limited company, or a registered partnership, or a limited liability partnership firm. However, there is no mention of sole proprietorship or a one person company to be qualified as a startup.
Another observation leads to the fact that an entity shall be considered a startup only if it aims to develop and commercialise – a new product or a service or a process or significantly improves on a product or service or process which will add significant value for customers or workflow.
This also leads to the fact that there is no chance for me-too products. If you are creating another e-commerce firm, you are not liable to get the tax benefits as you will not be defined as a startup unless there is some innovation in your product or process or services.
That being said, the process of registering yourself as a startup is quite simple as one needs to register through a mobile app (which is not yet launched) or the portal of DIPP (Department of Industrial Policy and Promotion). The startups will have to submit an application along with ‘any’ of the following documents.
Until such app or portal is launched, DIPP will make alternative arrangements to recognise a startup. Once the application is uploaded, a recognition number will be issued to the startup in real time. If the number is found to be obtained without uploading the documents, or uploading the forged documents, a fine on the applicant will be levied, which shall be 50 per cent of the paid-up capital of the startup and not less than Rs 25,000.
The word innovation has been mentioned quite frequently and has come up many times in the notification. However, the definition of the word startup has been loosely coined and thus reflecting ambiguity on the same scale. The involvement from government and the fact that the incubators should be funded or recognised by the governments creates a huge scope for corruption.
You can access the government notification here.