Govt’s Definition Of Startups Just Became More Inclusive. Here’s How

The Department for Promotion of Industry and Internal Trade (DPIIT) has released a gazette notification today, widening the definition of startups from the earlier definition under ‘Startup India, Standup India’ scheme. In the new definition, an entity will be considered a startup,  

1. Till upto 10 years from its incorporation date.
2. If an entity’s turnover for any of the financial years since its incorporation hasn’t exceeded INR 100 Cr.

In comparison, the earlier definition of startups as given in DPIIT’s April 2018 gazette notification, only considered entities upto a period of seven years from the date of incorporation as startups. Further, the entity’s annual turnover was not to exceed INR 25 Cr in any of the financial years since incorporation. Both the current and earlier definitions require entities to be working towards innovation, development or improvement of products, or a scalable business model with a high potential of employment/wealth generation.

Today in a tweet thread in the morning, India’s Minister of Commerce and Industry, Civil Aviation, Suresh Prabhu, shared bits from the latest amendments to the gazette notification.

Suresh Prabhu has also tweeted that today’s Gazette Notification will simplify the process for startups to get exemptions on investments under section 56(2)(viib) of Income Tax Act, 1961. This provisions under this section has been popularly called the angel tax.

Inc42 had earlier reported that the DPIIT will soon be issuing the notification to address the angel tax concern.

After the uproar over Angel Tax, DPIIT and the CBDT officials held a roundtable meeting with the various stakeholders and formed a Working Group including members from the Indian Private Equity and Venture Capital Association (IVCA), Indian Angel Network, iSPIRT, and LocalCircles.

Later, the Working Group met DPIIT officials and had confirmed that the demands raised by the startup stakeholders have been accepted and a notification will be issued soon.

Angel Tax is a levy of 30.9% on any angel investment raised by startups, which has been seen as a discouraging and heavy-handed tax on startups and angel investors. According to a recent survey, jointly conducted by the Indian Private Equity and Venture Capital Association (IVCA) and online citizen engagement platform Local Circles, over Angel Tax, 70% of Indian startups that raised capital have received one or more notices from the Income-Tax (I-T) department.

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