Startup recognition and Seed Fund Scheme

THE CONCEPTION

The Hon'ble Prime Minister of India announced the scheme in his Grand Plenary address of Prarambh: Startup India International Summit on 16th January 2021. After approval of EFC and Hon'ble Finance Minister, the scheme has been notified on 21.01.2021.

Funding from angel investors and venture capital firms becomes available to startups only after the proof of concept has been provided. Similarly, banks provide loans only to asset-backed applicants. It is essential to provide seed funding to startups with an innovative idea to conduct proof of concept trials.

Many innovative business ideas fail to take off due to the absence of this critical capital required at an early stage for proof of concept, prototype development, product trials, market entry and commercialization.

The Seed Fund will be disbursed to eligible startups through eligible incubators across India.

FORMATION OF EAC

An Experts Advisory Committee (EAC) has been constituted by Department for Promotion of Industry and Internal Trade (DPIIT) , which will be responsible for the overall execution and monitoring of the Startup India Seed Fund Scheme.

The EAC will evaluate and select incubators for allotment of Seed Funds, monitor progress, and take all necessary measures for efficient utilization of funds towards fulfilment of objectives of Startup India Seed Fund Scheme.

The EAC comprises of the following members

• Chairman - H. K. Mittal
• Special Secretary & Financial Adviser, DPIIT-Shri Shashank Priya
• Joint Secretary, DPIIT (Convenor)- Smt. Shruti Singh
• Advisor DBT- Dr Alka Sharma
• Head (NEB), DST- Dr. Anita Gupta
• Joint Secretary (Startups), MeitY- Shri Bhuvnesh Kumar
• Mission Director, Atal Innovation Mission (AIM), NITI Aayog- Dr Chintan Vaishnav
• Assistant Director General (IP &TM), ICAR, Department of Agricultural Research and Education- Dr K Srinivas
• Professor, IIM Kozhikode- Shri Saji Gopinath
• Chairperson, IVCA, Co-founder and Managing Partner, Blume Ventures)- Shri Karthik Reddy
• Co-founder IAN & Founding Partner IAN Fund- Smt. Padmaja Ruparel
• Founder, Avaana Capital- Smt. Anjali Bansal
• Head, Cisco Launchpad- Smt. Sruthi Kannan
• Co-founder Venture Catalysts & 9 Unicorns- Dr Apoorva Ranjan Sharma

ELIGIBILITY CRITERIA FOR APPLICATION FOR START-UPS UNDER THE SCHEME

• A startup, recognized by DPIIT*, incorporated not more than 2 years ago at the time of application.
• The startup must have a business idea to develop a product or a service with a market fit, viable commercialization, and scope of scaling.
• The startup should be using technology in its core product or service, or business model, or distribution model, or methodology to solve the problem being targeted.
• Preference would be given to startups creating innovative solutions in sectors such as social impact, waste management, water management, financial inclusion, education, agriculture, food processing, biotechnology, healthcare, energy, mobility, defence, space, railways, oil and gas, textiles, etc.
• Startup should not have received more than Rs 10 lakh of monetary support under any other Central or State Government scheme. This does not include prize money from competitions and grand challenges, subsidized working space, founder monthly allowance, access to labs, or access to prototyping facility.
• Shareholding by Indian promoters in the startup should be at least 51% at the time of application to the incubator for the scheme, as per Companies Act, 2013 and SEBI (ICDR) Regulations, 2018.
• A startup applicant can avail seed support in the form of grant and debt/convertible debentures each once as per the guidelines of the scheme.

RECOGNITION AS STARTUP

*As per the DIPP notification dated 19.02.2019, the following is the process for recognition (Clause 2 of the Notification)

2. The process of recognition of an eligible entity as startup shall be as under: 

(i) A Startup shall make an online application over the mobile app or portal set up by the DPIIT.

(ii) The application shall be accompanied by -

(a) a copy of Certificate of Incorporation or Registration, as the case may be, and
(b) a write-up about the nature of business highlighting how it is working towards innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.

(iii) The DPIIT may, after calling for such documents or information and making such enquires, as it may deem fit, -

(a) recognise the eligible entity as Startup; or
(b) reject the application by providing reasons.

Certification for the purposes of section 80-IAC of the Act

3. A Startup being a private limited company or limited liability partnership, which fulfils the conditions specified in sub-clause (i) and sub-clause (ii) of the Explanation to section 80-IAC of the Act, may, for obtaining a certificate for the purposes of section 80-IAC of the Act, make an application in Form-1 along with documents specified therein to the Board and the Board may, after calling for such documents or information and making such enquires, as it may deem fit, —

(i) grant the certificate referred to in sub-clause (c) of clause (ii) of the Explanation to section 80IAC of the Act; or

(ii) reject the application by providing reasons.

What is 80-IAC of the IT Act?

80-IAC. (1) Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for three consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of five years beginning from the year in which the eligible start-up is incorporated.

(3) This section applies to a start-up which fulfils the following conditions, namely:—

(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Explanation 1. - For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:

(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

(b) such machinery or plant is imported into India;

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.

Explanation 2. - Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.

(4) The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1).

Explanation. - For the purposes of this section, - 

(i) "eligible business" means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property;

(ii) "eligible start-up" means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—

(a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;

(b) the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and

(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;

(iii) "limited liability partnership" means a partnership referred to in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009).

Form 80IAC: Pitchdeck Guidelines

Please ensure that you provide all the following details in your pitch deck

• Information about the product/service offering of your startup
• Brief about how is your startup innovative and/or scalable (Uniqueness/USP of the startup that differentiates from its competitors in the market)
• Director details and their educational qualification, professional experience, and formal role in the startup/current designation (if any)
• Shareholding pattern as on the date of filling this application
• Directors and Shareholders' citizenship details
• Team details - current role, education, and professional experience
• Details about adherence to the specific government approvals required by the startups such as FSSAI registration, guidelines set by Bureau of Indian Standards
• Revenue model i.e. details of how the startup generates revenue
• Funding received from private investors or Angel/VC funds (Yes/No); if yes, please add names and details of the investors
• If any support (monetary/non-monetary) is received from Central or State Government Ministries/Departments/PSUs/Incubators
• Details of any public or private sector awards won by the startup
• Number of people directly employed with your startup
• Number of customers/clients - Paying customers/users with a copy of at least one Contract/Work-Order/MoU or the number PlayStore/AppleStore downloads in case of mobile applications along with a screenshot of the app listing on these platforms
• Link to your startup's website
• Screenshots/images of your product/website

Note: Pitchdeck uploaded must be in a PDF format

Form-1

Application for the certificate for the purposes of section 80-IAC of the Income-tax Act, 1961

1. Name of the Startup - .......................................
2. Date of incorporation/ registration of Startup - .......................................
3. Incorporation No./ registration No. .......................................
4. Address and business location- .......................................
5. Nature of business .......................................
6. Contact details of Startup (Phone No. and Email)- .......................................
7. Permanent Account No. .......................................
8. Existing/ proposed activities - .......................................

(Enclose copy of Memorandum of Association, LLP/partnership Deed, Board Resolution etc.)

Declaration

I/ We hereby certify that the above information furnished by me is true and no relevant information has been concealed.

For (Name of the Startup)

(Name of the authorised signatory) Designation

Place: __________
Date: __________

This form shall be accompanied by the following documents (if applicable)-

1. Annual Accounts of the startup for the last three financial years

2. Copies of income-tax returns for the last three financial years

Form- 2

Declaration by a Startup for exemption under Section 56(2)(viib) of the Income Tax Act, 1961

I, Son/ Daughter of having Permanent

Account Number (PAN) in my capacity as of (Company's Name) having DPIIT recognition number and Permanent Account Number (PAN)

hereby certify and declare that the said company has not invested and shall not invest for a period of seven years from the end of the latest financial year in which shares are issued at premium by the said company in any of the assets specified in para 4(iii) of the notification number G.S.R. 127(E) dated 19th February 2019 issued by Department for Promotion of Industry and Internal Trade, Ministry of Commerce & Industry.

2. I understand that failure to comply with the above declaration will result in the revocation of exemption with retrospective effect.

Place:
Date:

*Signature:

Name:
Designation:

*This declaration is to be signed by a person who is authorised to verify the return of income under section 140 of the Act.

Instruction for Deceleration under section:

1. Ensure the declaration form is in a PDF format when uploaded
2. The declaration needs to be digitally signed by a person who is authorized to verify the return of Income Tax u/s 140 of IT Act.
3. The declaration needs to be provided on the company letterhead.

The article is written with the intent to bring ease of application both for recognition as start-up and application under seed fund scheme. The source have been DIPP website and seedfund website of the Government of India.

The author can also be reached out at sandhya.malhotra29@gmail.com

Disclaimer: The material contained in this Article is general information and is not intended to be advice on any particular matter. Subscribers and readers should seek appropriate professional advice before acting on the basis of any information contained herein. The author, its employees, partners, agents and representatives expressly disclaim any and all liability to any person, whether a subscriber or not, in respect of anything and of the consequences of anything done or omitted to be done by any such person in reliance upon the contents of this article or any associated web pages.