Start-Ups: The Struggle And The Triumph!

The major development for start-ups came on February 19, 2019 vide Notification No. G.S.R. 127(E) (“2019 Notification”), which finally addressed a majority of the demands raised by start-ups

The Government of India in January 2016 launched a flagship initiative ‘Startup India’ with an intention of building a strong eco-system for nurturing innovation and promoting start-ups in the country in order to drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aimed to empower start-ups to grow through innovation and design.

In furtherance of this initiative, notifications were issued in 20161, 20172 and 20183 by the Department for Promotion of Industry and Internal Trade (“DPIIT”) (erstwhile – Department of Industrial Policy and Promotion), explaining the eligibility conditions, procedure for getting recognized as a ‘start-up’ and conditions and procedure for availing benefits (including tax benefits).

However, the major development for start-ups came on February 19, 2019 vide Notification No. G.S.R. 127(E) (“2019 Notification”), which finally addressed a majority of the demands raised by start-ups. The 2019 Notification prescribed inter alia the following amendments:

• widened the scope of start-up definition;

• increased the permissible aggregate limit of share capital for seeking exemption;

• deleted the resident investor eligibility criteria, with respect to their net worth and income;

• broadened the list of exempted investments by specified categories of investors;

• did away with the requirement of making separate applications for exemption under Section 56(2)(viib) of the Income-tax Act, 1961 (“IT Act”); and

• most importantly, it removed the requirement of providing justification for valuation of shares, thereby setting to rest the debate about discrepancies in the valuation methodologies used by the start-ups.

Eligible Start-Ups