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Criteria For Startup Recognition & To Avail Tax Benefits under 'Startup India' Scheme

Under the Startup India initiative, eligible companies can get recognized as Startups by Department for Promotion of Industry and Internal Trade [DPIIT] , in order to access a host of tax benefits & easier compliance.

Criteria For Startup Recognition :

Under the Startup India Action Plan, startups that meet the definition mentioned below are eligible to apply for recognition under the program.

Eligibility Criteria for Startup Recognition:

  1. Entity Type : The Startup should be incorporated as a Private Limited Company / One Person Company or registered as a Partnership firm or a Limited liability partnership

  2. Annual Turnover : Turnover should be less than INR 100 Crores in any of the previous financial years

  3. Validity : An entity shall be considered as a startup up to 10 years from the date of its incorporation

  4. Innovative & must Scale :The Startup should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth. An entity formed by splitting up or Reconstruction of an existing business shall not be considered a "Startup"

  5. Original Entity : Entity should not have been formed by splitting up or reconstructing an already existing business

Criteria For Availing Tax Benefits :

Availing Tax benefits under the Startup India needs lots of criteria to be fulfilled. All startups cannot avail the tax benefit. Here is how one may enjoy the tax benefits :

i) The business for which the rebate is applied must be an innovative one. Startup India supports only those who have a fresh idea in manufacturing or service which is profitable for the society.

ii) The product of one's business must add value to its customer or industry. Value adding is a must-have feature to qualify for tax rebate.

iii) One's product must have the quality of solving at least one problem of the society. If your product comes in a luxurious item, then the tax concession is not applicable to your business.

iv) The private limited company (including One person Company) or Limited Liability Partnership (LLP) which is applying for tax benefits must be registered on or after 1st April, 2016.

v) You have to fill up the form carefully while registering your business for startup India scheme. While filing for startup India registration, one must select the option of “registration with tax benefit” to avail tax benefits.

vi) The business model which you are going to execute must be a working business model or else the incubators may reject your application stating the business model will not work in real time.

vii) One has to obtain a recommendation letter in order to avail the tax benefit. The recommendation letter should be obtained from any of the followings.

  • Incubators established in postgraduate college

  • Incubator which is funded from Central or state government

  • Incubator recognized by the Government of India.

  • Letter of funding of not less than 20 percent in equity

  • Letter of funding from Central or state government

  • Patent filed and published in the journal

Eligible startups can be exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation. The Startup India scheme is very helpful for the young entrepreneurs with a product which is helpful for the society. A tax holiday for three consecutive years will make them invest that amount in their business to increase the revenue. Once the business is established than paying 30% of tax will not be a big deal for any entrepreneur.

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