Incubators and funding bodies providing recommendation letters, certifying startups as eligible to avail government tax benefits without proper examination or without being satisfied about the innovative nature of their business, will be blacklisted from giving any future recommendation, said the FAQs released by the Department of Industrial Policy and Promotion (DIPP) on Thursday.
In the case of funding bodies, DIPP went so far to say that they might even initiate criminal proceedings against the principal officers designated by funding agencies, for providing wrong information about startups with less than 20% funding equity.
The central body, however, said that such an action will be only taken after a due opportunity is given to the party.
As per the FAQs, an entity (private limited company or registered partnership firm or Limited Liability Partnership) shall be considered a ‘startup’ up to 5 years from the date of its incorporation/registration, and if its turnover for any of the financial years has not exceeded Rs. 25 Cr and is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
The entity, it said should not have been formed by splitting up or reconstruction of a business already in existence.
The government said that incubators and funding bodies can only validate a startup if it aims to develop a new product or a significantly improve existing product or service that will create or add value for customers or workflow.
It also cautioned the bodies from endorsing companies, which do not have a potential for commercialization and products or services with no or limited incremental value.
Defending the stringent policies, Ramesh Abhishek Secretary, DIPP said that the government only wants to ensure all parties are cautious and responsible while recommending companies.
DIPP on Thursday also launched an online portal, with a mobile application, dedicated to startups, which provides up-to- date information on various notifications/ circulars issued by various government ministries/ departments, the portal and mobile app will also provide information regarding incubators and funding agencies recognized for the purpose of recommending startups.