India: Startups.v2 – DIPP Relaxes The Definition And Process For Recognition As A Startup


In January 2016, the government rolled out the 'Startup India Action Plan' towards its ambitious 'Startup India-Stand Up India' manifesto. It laid out several incentives and benefits to encourage entrepreneurship within the country. Consequently, the Department of Industrial Promotion and Policy (DIPP) vide its notification dated 17 February 2016 (2016 Notification) defined 'startups' for the first time, laid down the eligibility criteria for an entity to qualify as a startup including for availing tax benefits, and the process for recognition or registration of startups to avail the incentives provided by the government.

However, in spite of several such initiatives, the startup ecosystem in India has not taken-off as expected. This was largely due to excessive regulatory and bureaucratic intervention, with innovation being the primary criteria for qualifying as a startup, the lack of clarity on whether the innovation criteria was to be tested on a domestic or on a global platform. These shortcomings led the government to re-assess and re-consider the 2016 Notification. Accordingly, in supersession of the 2016 Notification, the government released a notification dated 23 May 2017 (2017 Notification), which has re-defined startups, relaxed the eligibility criteria and the recognition process for startups.

A brief comparative table below outlines the changes.

Heads Startup – 2016 Notification Startup – 2017 Notification
Definition An entity will be considered as a 'startup':
  1. that is not more than 5 years old;
  2. the annual turnover (as defined in the Companies Act, 2013) of which has not exceeded INR 25 crores in any previous financial year;
  3. is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;
An entity will be considered as a 'startup':
  1. that is not more than 7 years old from the date of its incorporation/ registration.

    An exception has been introduced specifically for startups in the biotechnology sector, in which case the period shall be up to 10 years from the date of its incorporation/ registration;
  2. No change in annual turnover.
  3. is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
Yardstick for innovation for tax benefits A business will be covered under the definition of 'startup' only if it aims to develop and commercialize new products, services, or processes, or significantly improve existing products, services, or processes, resulting in creation or addition of value for the customers or the workflow. The mere act of developing products, services, or processes which: (a) do not have the potential for commercialisation; (b) are undifferentiated; or (c) have no or limited incremental value for customers or workflow, would not be covered under the definition of 'startup'. The criteria (a) to (c) of 2016 Notification remains the same.

In addition, it is provided that innovativeness shall be considered from a domestic standpoint.
Entity structure Private limited company, registered partnership firm, or limited liability partnership. Private limited company or limited liability partnership provided such entity is incorporated on or after the 1 April 2016 but before the 1 April 2019.
Structuring An entity formed as a result of splitting up or reconstruction of an existing business will not be recognised as a startup. No change
Process for recognition A startup was required to apply for recognition through the mobile app/ portal of the DIPP with any of the following documents:
  1. a recommendation from an incubator established in a post-graduate college in India, with regard to the innovative nature of its business;
  2. a recommendation / support letter from an incubator recognized / funded by the Government, with regard to the innovative nature of its business;
  3. a letter of funding of at least 20% equity by an incubation fund, angel fund, private equity fund, accelerator, or angel network duly registered with the Securities and Exchange Board of India (SEBI), and which endorses the innovative nature of such startup's business;
  4. a patent filed and published in the Indian Patent Office in connection with its business; or
  5. a letter of funding by the Government as part of any specified scheme to promote innovation.
The process of recognition as a 'Startup' will be through an online application made over the mobile app/ portal set up by the DIPP.

The recommendation / support letters as required under 2016 Notification have been done away with. These were infact seen as major hurdles and excessive regulatory intervention.

The process has been fairly simplified now and self-certification has been introduced. Entities will now be required to submit the online application along with the certificate of incorporation/ registration and other relevant details as may be sought.

Further, startups also have to submit 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.
Tax Benefits Eligibility Startups will be eligible for various tax benefits only upon obtaining a certification from the Inter-Ministerial Board (IMB) to be set up by the DIPP. No change
Penalty / Revocation If the recognition was found to be obtained without uploading the documents / forged documents, the concerned applicant was liable to a fine of 50% of paid up capital of the startup which shall not be less than INR 25,000. The prescribed monetary penalty has been abolished. However, DIPP reserves the right to revoke the recognition certificate and certificate of an eligible business for tax benefits immediately without any prior notice or reason in such cases.


As per DIPP's recently released progress report, until 15 May 2017 the DIPP gave recognition to around 1,006 start-ups. However, until date, only 23 startups have been recognized for tax benefits by the IMB. With the relaxed definition of a startup, innovativeness to be considered within India only and the self-certification regime for recognition, it is expected that more start-ups would be recognized for tax benefits. However, there are some concerns regarding the 2017 Notification. The emphasis on job and wealth creation may not really help tech-startups since most of them have lean structures and cost constraints in the initial years of business. Further, not all startups would be able to provide a future plan in terms of people to be hired in the long run. While the enhanced time limit of 7 years to qualify as a start-up is encouraging, however, the relaxation could have been extended to certain other sectors with a long gestation period, in addition to biotech start-ups. While the government's intent and efforts towards job creation and economic and technological growth are definitely reassuring for the entrepreneur ecosystem in the country, more needs to be done on the ground level to get this initiative moving.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions