How to Start a Startup in India: DPIIT Recognition & Tax Benefits 

Starting a start up in India sounds exciting, but it requires certain legal requirements to run a stable one. Such as the right legal structure, company incorporation, and compliance from the beginning. As a startup, one important step is to obtain DPIIT recognition under the Startup India initiative. This helps startups to access government benefits such as tax exemptions, easier access to government tenders, funding support, and lower intellectual property filing costs.

Setting up a business in India, especially as a foreigner, requires proper market research and this is where a professional with good market knowledge comes into play. However, before we jump to that, let’s look at step-by-step process for starting a startup, how to apply for DPIIT recognition, eligibility criteria, and benefits.

What is DPIIT Startup Recognition?

DPIIT recognition is an official certification issued by the Department for Promotion of Industry and Internal Trade, under the Ministry of Commerce and Industry. This certification ensures that your company meets all the eligibility requirements and qualifies under the government’s legal definition of a “startup”.

However, DPIIT recognition is not company incorporation, you still need to register your company with the Ministry of Corporate Affairs (MCA). It’s a layer of recognition that helps you access tax benefits, easily be compliant, and reap the benefits of government schemes for startups.

What are the Eligibility Criteria for Startup Recognition?

Under the DPIIT regulations, an entity to qualify as a startup must satisfy the following conditions:

• Entity Type: The entity must be incorporated as a Private Limited Company, a Limited Liability Partnership, a Registered Partnership Firm, a Cooperative Society, or a Multi-State Cooperative Society. A structure like a sole proprietorship does not qualify.
• Age of the Entity: The entity must be less than 10 years of age, from the date of incorporation. The age window is extended to 20 years for startups under the newer Deep Tech category (covering AI, quantum computing, space technology, robotics and biotechnology, with supporting scientific documentation).
• Annual Turnover: The annual turnover of the company must not exceed INR 200 crore in any financial year since its incorporation. The threshold for a Deep Tech startup is INR 300 crore.
• Originality: The business must be an original business. An entity formed by splitting up or reconstruction of an existing business will not be considered as a “Startup”.
• Innovation: The entity must show potential for wealth creation and employment generation while working towards development, improvement, or commercialisation of a product.

What Documents are Required for DPIIT Recognition?

The list of documents required for the DPIIT Certificate of Recognition for startups:

• Certificate of Incorporation of the entity or Certificate of Registration (LLP, Partnership Firm, Cooperative Society).
• PAN card of the entity.
• If the startup has received any funding, proof of Funding is needed.
• Details of any patents, trademarks, or awards received by the entity.
• A brief description of the nature, working of the business and its innovation or scalability.
• Aadhaar number and active mobile number of the authorised representative or director, for OTP-based portal verification

What is the Step-by-Step Process to Register a Startup and Obtain DPIIT Recognition?

Here is the step-by-step process of registering your company as a startup and obtaining the DPIIT recognition:

Step 1: Incorporate Your Entity

The company is eligible for DPIIT recognition only if the entity is formally registered as a Private Limited Company, LLP, or a partnership firm with Ministry of Corporate Affairs and holds a Certificate of Incorporation.

Step 2: Register with Startup India

The process to register with Startup India is quite simple

• Visit the Startup India website.
• Click on the ‘Register’ button.
• Now it will ask you to enter details like name, email ID, mobile number, and password. Fill in the details and click on the ‘Register’ button.
• Next, enter the OTP which is sent to your email and some other details, like the entity type and the stage of startup, etc., and click on the ‘Submit’ button.
• Now your Startup India profile is created.

Step 3: Get DPIIT Recognition

After the registration on the Startup India Website, the next step is to apply for the Department for Promotion of Industry and Internal Trade (DPIIT) recognition.

• On the Startup India website, log in with your registered account and go to the ‘Recognition’ tab.
• Then click on ‘Apply for DPIIT Recognition’.
• On the next page, click on ‘Apply now’, it will direct you to the National Single Window System (NSWS) website.
• Register on the NSWS website by clicking on ‘Registration as a Startup’ and the ‘Startup Recognition Form’.

Step 4: Recognition Application

On the ‘Startup Recognition Form’, you need to fill in the details of the entity such as full office address, authorised representative details, directors/ partner details, information required, startup activities and self-certification. After filling in all the details, accept the terms and conditions and click on ‘Submit’.

Step 5: Documents For Registration

Now attach all the required documents with the form. Check the documents from the list above.

Step 6: Recognition Number

After applying, you will get a recognition number for your startup. The certificate of recognition will be issued after the verification of your documents and details. This will be done within 2 days of form submission.

Benefits of DPIIT Startup Recognition

The DPIIT recognition gives your business an official government status and unlocks several benefits like access to government incentives, tax benefits, funding opportunities, and regulatory exemptions. Some key benefits are:

Tax Benefits

Under Section 80-IAC of the Income Tax Act, 1961, a DPIIT-recognised startup can claim 100% exemption from income tax on profits for any three consecutive years out of their first ten years since incorporation. This exemption is available only for Private Limited Companies and LLPs.

Access to Government Funding

DPIIT recognition is required to apply for schemes such as the Startup India Seed Fund Scheme (SISFS). It also enables startups to be considered for investment through the Government’s INR 10,000 crore Fund of Funds for Startups (FFS), which invests via SEBI-registered Alternative Investment Funds (AIFs).

Lower IP Filing Costs and Faster Processing

Startups with DPIIT recognition are charged reduced government fees for patent, trademark, and design applications. Patent applications receive fast track examination, helping startups to protect their innovations more quickly.

Easier Access to Government Tenders

DPIIT recognised startups are exempt from the Earnest Money Deposit (EMD) and the criteria to have a certain prior turnover and experience requirements for eligible government tenders. They can also list their product directly on the Government e-Marketplace (GeM).

Common Reasons Why DPIIT Applications Get Rejected

Here are some of the common reasons why the applications get rejected:

• A weak innovation statement: This is one of the major causes of rejection. Founders often underestimate how specific the write-up needs to be.
• Applying with an ineligible business structure: This is important to ensure that you apply for eligible entities such as Private Limited Companies, LLPs, and Registered Partnership Firm.
• Assuming DPIIT recognition and 80-IAC exemption are the same: Many founders stop after DPIIT recognition, not realising that they are separate certificates from separate authorities, and the 80-IAC exemption requires another application.

Compliance After Getting DPIIT Recognition

After obtaining the DPIIT recognition, startups must continue to meet the eligibility conditions and maintain proper records to stay compliant and keep enjoying the benefits:

• Check eligibility annually: Ensure that your startup meets the eligibility criteria, such as the prescribed age and turnover limits. Recognition ceases once the business fails to satisfy the Startup India eligibility criteria.
• Maintain Business Records: Keep the company details accurate and consistent across your DPIIT certificate, MCA records, PAN, and other official documents. This would avoid any issues while claiming benefits.
• Plan to Apply for the Section 80-IAC Tax Holiday: DPIIT recognition does not grant the three-year tax exemption automatically. Since the exemption can be claimed for any three consecutive years within the eligible time period, choose to apply strategically.
• Maintain Supporting Documents: Keep the records that support your innovation claims, business activities, and eligibility. Authorities review these documents, and incorrect or misleading information can result in the withdrawal of recognition and related benefits.

Conclusion

DPIIT recognition for startups can be a really valuable step. This will help the startup to access important benefits such as tax exemptions, funding support, reduced IP filing costs, and easier participation in government tenders. This will eventually help in the growth of the business. The startup must meet the eligibility criteria, have the incorporation in place, submit accurate documents and stay compliant to enjoy the benefits and operate without any hurdles.

By understanding the registration process clearly and planning each step carefully entrepreneurs can make the best use of the Startup India initiative. However, this is where good guidance can help the business to use the opportunities to maximise growth. At Stratrich, we have experts having years of experience in helping startups to navigate their way through the Indian regulatory system. Contact us today, to grow with confidence.