Department of Industrial Policy & Promotion (DIPP) has put an end to some certifications and issued warnings to organizations seeking to avail exemptions by categorizing themselves as “startups”.
In a recent meeting of Inter-Ministerial Group on Startups held on March 15, certificates of recognition and that of eligibility given to two entities- Riot Solutions and JVS Flow Control PC were revoked on account of failing to give a report on whether they were subsidiaries of some companies or working as individual organizations.
A government official reported, “These organizations were sent queries by IMG a few months back but have not responded yet. Hence, IMG has revoked certifications issued to them. It should serve as a warning to others.”
IMG has come to know that certain firms had falsely sought recognition as startups by DIPP. But in actuality, they were subsidiaries of some already existing Indian or foreign companies.
As per Reconstruction Clause mentioned in 5001(E), organizations or entities formed by splitting up already existing companies will not be considered as startups.
The IMG Board stated,
Keeping in view of the clause, any such organization recognized as a startup by DIPP shall not be considered for tax benefits and their certifications shall be canceled.
The IMG spokesperson also mentioned that the reason behind promoting startup culture in the country is to motivate individuals to start their own enterprises and get rightfully employed. The idea or thought fails if existing companies try to take advantage of the same.This is the reason IMF has come up with stringent measures to put an end to such violation against the law.
Income Tax Exemptions for Startups
In order to promote startup ecosystem in India, Government is presently providing various tax exemptions to startups. Recently, it has extended tax holiday exemption up to April 1, 2021. The government has also put a cut down on corporate tax by 5% for startups and SME’s having a turnover less than 50 crores. It is due to these benefits that companies are falsely calling themselves as startups and nullifying PM’s ambitious initiative to promote startup culture in India.
While IMG has already begun its scrutiny to catch hold of companies disguising them as startups, DIPP should also reframe its guidelines for recognition of companies as startups for a stronger law framework.