Currently, an entity can be called a startup only up to five years since incorporation.

What is a startup DIPP secretary invites inputs for a new definition
Atom Startups Tuesday, March 07, 2017 - 12:31

At a time when an array of startups are emerging, each with a unique business model, the Department of Industrial Policy & Promotion (DIPP) is looking at revising the definition of startups.

Speaking at the IVCA’s Annual India Alternatives Conclave 2017 in Delhi, DIPP secretary Ramesh Abhisekh invited feedback and suggestions from various industries in India to overhaul the definition of startups.

According to various news reports, Abhisekh said, “We would be happy to make it even more broad-based. We are not hung up on the definition. For example, startups working in biotech, nothing happens before eight years.”

The idea is to incorporate different periods for different startups, based on how much time they take to flourish. DIPP is looking to be more inclusive on the ground reality.

The DIPP secretary also said that if startups present a valid case, DIPP will allow relaxation in that sector or area. With the DIPP currently inviting feedback, the new definition may take a while to be incorporated.

After much confusion over what a startup actually is, the government of India went ahead and defined Startups in February last year.

According to the DIPP’s February 17, 2016 notification, an entity will be considered a startup up to five years since its incorporation or registration and if the turnover for any of those financial years has not exceeded Rs 25 crore.

It also mentions that an entity will be considered a startup if “it is working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.”

It further explains that this provision is valid only if the entity is developing or commercialising a product that is new or significantly improves an existing product or service. It must create or add value for customers or workflow.

A mere act of developing undifferentiated products, services or processes which have no potential for commercialization and add little or no incremental value will not be covered under this definition. 

This definition of a startup attracted some criticism calling it restrictive and ambiguous. For example, It clearly had no place for just another ecommerce player with a similar business model.

The turnover limit was debated as well because some firms take a lot more time to develop and generate significant revenues. In the proposed alteration of the definition, a different criteria for turnover based on sectors will also be considered.

In the definition given last year, there was no direction given to address failures of startups or providing support when it comes to funding either.

According to PTI article, a report by The Federation of Indian Chambers of Commerce and Industry (FICCI) states that the government must provide incentives to investors in startups and to direct funding based on monitoring and evaluation.

It also states that startups face multiple difficulties when it comes to hiring, incorporation and fund raising and that they require adequate support to tide over these difficulties and hence minimize failures.

The DIPP secretary also said that it has asked an independent group to look into cases for income-tax benefits as well. Of the 200 startups that applied for tax benefits, only 10 have been recommended.

According to the current regulations, a startup has to obtain a certification from the inter-ministerial board (IMB) to be eligible for tax benefits.

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