[vc_row][vc_column][vc_column_text]Entities having a scalable business model, which have a high potential of employment generation or wealth creation, can now be eligible for recognition as a Start-up. Earlier, only if the activities of an entity were innovative and driven by technology or intellectual property could it be considered as a Start-up by the Department of Industry Policy and Promotion (DIPP). Endorsing the move by the Centre, Sri R, Krishnamurthy, President, PIA pointed out that this will expand the Start-up eco-system and enable mainstream, traditional industries to be classified as Start-ups and enjoy the benefits available. “It is certainly a very forward looking decision.
This will also bring about a transformation and open up opportunities for the newly classified Start-ups to focus on solving real problems on the ground rather than limit themselves to a virtual environment. For example, Apps can only do up to a point, beyond which real life products and services have to be incubated and operationalized, which is what the new policy will help to ensure,” Krishnamurthy said. According to DIPP, recognition as a Start-up by the DIPP is required for get various concessions, such as reduction in patent application fees, fast-tracked patent process and even a tax holiday. The earlier restrictive definition had left out many entities that were not technology-centric. As earlier, the legal structure of the entity can be a private company, a partnership firm or a limited liability partnership. There is also no change in the turnover criteria, which must not exceed Rs. 25 crore for any of the financial years since incorporation.
The Finance Act, 2016 has made provision for Start-ups to get income tax exemption for three years in a block of five years, if they are incorporated between April 1, 2016 and March 31, 2019.
The Budget 2017-18 has increased the period to three years in a block of seven years. According to official statistics, 932 entities have been recognised as Start-ups till date by the DIPP. Of these, 23 have been approved for availing tax benefits by the inter-ministerial committee as of early May. On the flip side, investors, Start-ups and legal experts aver that the amended definition is ambiguous.
Under an earlier notification of the DIPP, one of the conditions to qualify as a Start-up was that the entity should “be working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property”.
This definition stands amended by the DIPP in its notification dated May 23. Now entities having “a scalable business model with a high potential of employment generation or wealth creation” could also qualify for recognition as a Start-up by the DIPP.
According to some legal experts, the 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? While the online process of application via an app or DIPP’s portal is also useful and these relaxations are welcome, assessment of employment generation or wealth creation is subjective and specific to each Start-up 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.[/vc_column_text][/vc_column][/vc_row]