Prakhar Softech Services Ltd.
Article Dated 09th March, 2023


Startup India is a flagship initiative launched by the Government of India in 2016 to promote entrepreneurship and foster innovation in the country. The initiative aims to create a conducive ecosystem for startups to grow and flourish, thereby driving economic growth and job creation. In this article, we will discuss the benefits Startups can reap out of Startup India initiative and how it can and has contributed to the growth of the Indian startup ecosystem. According to the latest data from Nasscom, India is now home to more than 50,000 startups, making it the third-largest startup ecosystem in the world after the United States and China. The Indian startup ecosystem has also witnessed a significant increase in funding in recent years.


To reap the benefits out of Startup India Initiative a Company/LLP/Firm must be registered as a STARTUP with the Department for Promotion of Industry and Internal Trade (DPIIT). To be recognised as a Startup the Entity must fulfill the following criteria-

- Period of existence and operations should not be exceeding 10 years from the Date of Incorporation.

- Incorporated as a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership.

- Should have an annual turnover not exceeding Rs. 100 crores for any of the financial years since its Incorporation.

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

-  Should work towards:

  • development or

  • improvement of a product, process or service and/or

  • have scalable business model with high potential for creation of wealth & employment.

As on the date of this article a total of 92,915 entities have registered themselves as STARTUP with the DPIIT of whom a total of 3,384 STARTUPs have received funding from and 1,048 STARTUPs have received exemption from Income Tax under section 80-IAC of The Income Tax Act, 1961, more on which will be discussed in the fore coming part of the article.

Some of the few benefits that come with being registered with the DPIIT is as under-


a. Startups shall be allowed to self-certify compliance for various Labour Laws and 3 Environmental Laws through a simple online procedure.

b. Startups shall be allowed various benefits under the Labour and Environmental Laws


  1. Startups shall be allowed to self-certify compliance for various Labour Laws and 3 Environmental Laws through a simple online procedure.

  2. For effective implementation of the scheme, a panel of “facilitators” shall be empanelled by the Controller General of Patents, Designs and Trademarks (CGPDTM), who shall also regulate their conduct and functions. Facilitators will be responsible for providing general advisory on different intellectually property as well as information on protecting and promoting intellectual property in other countries.

  3. Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.

  4. Startups shall be provided an 80% rebate in filing of patents vis-a-vis other companies. This will help them pare costs in the crucial formative years


Eligible startups can be exempted from paying income tax for 3 consecutive financial years out of their first ten years since incorporation. The salient features of and conditions for eligibility are as under-

  • Must be a Company or a LLP (even though a registered partnership firm can be recognised by the DPIIT but it is not entitled to Income Tax exemption under this section)

  • The startup must be incorporated as a company or LLP after April 1, 2016, and before April 1, 2023.

  • (it has been proposed through Finance Bill, 2023 to extend the benefit to entities incorporated upto April 1, 2024.

  • Must be carrying on business which involves innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation.

  • Should have an annual turnover not exceeding Rs. 100 crores for any of the financial years since its Incorporation.

  • Should be registered with the DPIIT.


  1. Exemption under Section 56(2)(viib) of Income Tax Act

  2. Investments into eligible startups by listed companies with a net worth of more than INR 100 Crore or turnover more than INR 250 Crore shall be exempt under Section 56(2)(viib) of Income Tax Act

  3. Investments into eligible Startups by Accredited Investors, Non-Residents, AIFs (Category I), & listed companies with a net worth more than 100 crores or turnover more than INR 250 Crore, shall be exempt under Section 56(2)(viib) of Income Tax Act


  1. As per the Insolvency and Bankruptcy Code, 2016, startups with simple debt structures, or those meeting certain income specified criteria* can be wound up within 90 days of filing an application for insolvency.

  2. An insolvency professional shall be appointed for the Startup, who shall thereafter be in charge of the company (the promoters and management shall no longer run the company) including liquidation of its assets and paying its creditors within six months of such appointment.

  3. Upon appointment of the insolvency professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBC. This process will respect the concept of limited liability.


  1. Government e Marketplace (GeM) is an online procurement platform and the largest marketplace for Government Departments to procure products and services. DPIIT Recognized Startups can register on GeM as sellers and sell their products and services directly to Government entities. This is a great opportunity for startups to work on trial orders with the Government.

  2. In order to promote startups, the Government shall exempt Startups in the manufacturing sector from the criteria of “prior experience/ turnover” without any compromise on the stated quality standards or technical parameters. The Startups will also have to demonstrate requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India.

  3. DPIIT recognised startups have been exempted from submitting Earnest Money Deposit (EMD) or bid security while filling government tenders.

In addition to above startups can get access to different funding/financing facilities-

- Fund of Funds for Startups (FFS)

  • FFS was announced with a corpus of Rs. 10,000 crore in Sept, 2022. FFS has not only made capital available for startups at early stage, seed stage and growth stage but also played a catalytic role in terms of facilitating raising of domestic capital, reducing dependence on foreign capital and encouraging home grown and new venture capital funds.

  • The amount committed under FFS has seen a notable growth over the years recording a CAGR of over 21% in since the launch of the Scheme.

- Startup India Seed Fund Scheme (SISFS)

  • Startup India Seed Fund Scheme (SISFS) aims to provide financial assistance to startups for proof of concept, prototype development, product trials, market entry and commercialization. Rs. 945 Crore corpus will be divided over the next 4 years for providing seed funding to eligible startups through eligible incubators across India.

  • This would enable these startups to graduate to a level where they will be able to raise investments from angel investors or venture capitalists or seek loans from commercial banks or financial institutions.

CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at

CA Pranay Jain
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