Education technology (EdTech) businesses are rising globally and in India. In an increasingly digital world, learning has become more accessible. The Ed-Tech industry is also promising, with the potential to grow further.
However, being part of any business means complying with certain obligations and policies to safeguard your interests as an entrepreneur. To start your business as an EdTech company in India, you must understand the opportunities, obligations, policies, and compliances involved.
This blog covers everything you want to know about starting an EdTech business in India, from setting up your company to registering for taxes and SOX compliance.
What Exactly is EdTech?
EdTech refers to the use of technology in education and training. It includes digital learning environments, online tutoring, and digital content such as eBooks or online courses.
The sector has seen a lot of growth in the last decade. The global EdTech market was valued at US$88.82 billion in 2021. It is expected to reach US$101.64 billion by the year 2022.
The study of the EdTech market in India indicates that it is expected to grow to US$10.4 billion by 2025.
What qualifies as EdTech Startup?
The definition of an Ed Tech startup varies, but generally speaking, it’s a company that uses technology to help improve education for students. These startups can come in all shapes and sizes, from apps to hardware devices or even those that provide services like tutoring, coaching, test prep, skill development, mentorship programs, etc.
While there is no specific definition of an Ed-Tech startup, it’s generally understood that these companies are relatively new compared to more established players in the industry.
Here are a few examples of some popular EdTech startups:
- Khan Academy - Khan Academy offers free online videos on topics such as math, science and economics, with over 3 million subscribers on YouTube alone. They also have a version of their app available on iOS and Android devices.
- Duolingo - Duolingo is an application that teaches languages free of charge with a focus on fun rather than being boring, like traditional methods of learning languages in schools like Rosetta Stone or Pimsleur.
- CodeHS - CodeHS is an online platform that helps high school students learn how to code through interactive lessons and projects.
- SaPaIndia - SaPaIndia is an online platform that connects you to the best music teachers in India. You can choose from a wide range of courses depending on your requirements and budget.
- SATnPaper - SATnpaper is for students who are serious about getting into their dream college and want to maximise their chances of getting in. They have helped hundreds of students achieve their goals by training them on how to crack the SAT, ACT, and AP exams.
Which are these EdTech Startups, Valued at a Million dollars or More?
The EdTech startup ecosystem is dominated by India, China and the United States, with many other countries like Singapore and Canada also playing an essential role in this space.
Ed-Tech Startups are usually focused on providing online learning or classroom teaching solutions to students and teachers around the world.
So here are the top 7 Ed-Tech startups valued at a million dollars or more:
What Kind of Complaints did EdTech Companies face?
As the Ed-Tech industry in India has grown in size and scale, several issues have cropped up. Some of the problems are as follows: it is also important to note that the Ed-Tech sector is a self-regulatory body.
- Quality of education - One of the most critical issues the Ed-Tech sector had to deal with was providing high-quality education to students. This is essential to any EdTech company’s service offering and brand promise.
- Competition issues - The EdTech sector in India is a highly competitive free market. It has become a global market with several companies offering the same services from different parts of the world. This has led to several complaints of unfair business practices.
- Company compliance and policy issues - Without proper legislation and compliance, the sector faced problems that threatened the interests of companies and customers.
What does the Existing Legal Framework for EdTech look like?
The EdTech sector in India is currently regulated by the Indian Contract Act 1872, the Indian Penal Code 1860, and the Companies Act 2013. However, there is no dedicated legislation for the sector. This means that the laws in place do not provide a comprehensive legal framework for the industry.
Several customer complaints against EdTech companies revealed the need for a statutory grievance redressal authority. The government responded to this need by setting up a committee chaired by the Secretary of Human Resource Development (HRD).
The government also formed a task force that drafted a model law for the EdTech sector. The draft model law was then submitted to the Standing Committee on Human Resource Development. The committee prepared a report that included suggestions to address the issues faced by the sector.
To learn more about the Regulatory Framework for EdTech Startups in India, download our eBook that goes more depth about it.
What are the Legal Obligations for EdTech businesses in India?
If your company is an Ed-Tech business, you must comply with the various legal obligations that apply to all businesses. Some of the edtech guidelines according to the government are as follows:
The Ten EdTech Guidelines for Ed-Tech Start-ups in India:
- Registration as an Entity:
You must register your organisation as a legal entity before the government recognises it.
- Protection of Intellectual Property (IP):
Intellectual property rights are the heart of any technology business, which is why protecting those rights is essential.
- Consideration of Different Legal Structures for an Ed-Tech Institution:
To start a business, you must establish and incorporate a corporate legal entity. The most common forms of business organisation are a limited company and a limited liability partnership LLP firm.
- Register for GST Compliance:
The Ed-Tech Company needs to apply for GST registration.
- Creation of Domain Name and Websites:
Websites and internet domains significantly impact how people perceive your business. A unique domain name recognises your business and helps it stand out from the crowd.
- Compliance with Information Technology (IT) Act, 2000:
The EdTech platform may be considered an intermediary (an EdTech marketplace, for example) within the IT Act based on the specifics of its business model. According to Indian law, an intermediary must comply with the provisions of the Act and the Information Technology (Intermediaries Guidelines) Rules, 2011.
- Registration of Intellectual Property (IP):
Registering your intellectual property gives you exclusive rights to it. Intellectual property forms the root of an EdTech structure, which means you must register your IP correctly with the correct entity.
- Registration of Essential Agreements:
To protect yourself and your ideas, you may want to prepare Non-Disclosure Agreements (NDA), Intellectual Properties (IP) Agreements, Website Policies & Agreements and Confidentiality Agreements.
- Get a Payment Gateway:
The Payment and Settlement Systems Act of 2007 regulates payment and settlement systems in India. Online businesses use services like PayPal, PayUMoney, etc., for processing payments.
- Get Data Protection in India:
Two laws protect the privacy of information--the Information Technology Act, 2000, and “Information Technology (Reasonable security practices and procedures and sensitive personal data or information) Rules, 2011.
What is the Registration Process for EdTech Business in India?
The process to register an EdTech business in India is as follows:
- Select a Name for Your Company - The first step towards registering your EdTech business in India is to choose a name for your company. The name has to be unique, distinguishable, and not misleading. You can select a name in any Indian or foreign language.
- Get a Registered Address - The next step is to get a registered address for your company. This is where your business will be operating from. You can either choose to get a commercial property or a rented house.
- Hire a Professional who can take care of Legal Compliance - You can hire an accountancy firm or an attorney to help you comply with all the legal obligations that apply to businesses in India. Alternatively, you can also choose to hire an all-in-one service provider.
If you don’t want to hire a legal professional, you can follow the registration process mentioned in our eBook for Education Technology Start-up in India.
LegalTech platforms are a boon for startups and entrepreneurs. LegalTech platforms in India have become popular quickly, with many focusing on specific domains like startup incorporation or digital contracts. Getting a startup registered in India can be tedious, especially if you’re trying to do it yourself. However, if the process in our eBook seems too complicated or you don’t want to risk legal paperwork, you can consider these 5 LegalTech platforms in India.
- Vakilsearch: Vakilsearch is one of the legal tech companies in India that offer a simple and convenient way to file for trademarks. It also provides various other services, including business registration and incorporation, copyright, trademark, patents and designs, etc. They also have teams of chartered accountants and company secretaries that help you maintain your books and taxes.
- IndiaFilings: IndiaFilings is another legal tech company that offers a wide range of services, including corporate secretarial services, corporate restructuring and compliance services, technology solutions and intellectual property based on your needs and requirements.
- Provakil: Provakil is yet another legal tech platform that provides legal advice and online filing solutions for trademarks and patents. This platform also offers valuable information on trademark laws in India and other countries worldwide, such as the UK, Australia, Canada, China and others.
- PracticeLeague: PracticeLeague helps you create legal documents like contracts, non-disclosure agreements, employee agreements and NDAs. It also has templates for other documents such as terms of service agreements (ToS), privacy policies, etc.
- SpotDraft: SpotDraft differs from most LegalTech platforms because it focuses solely on digital business contracts. Spotdraft allows users to create customisable business contracts based on their needs and requirements by choosing from hundreds of templates available on the platform. Once created, these contracts can be sent out via email or uploaded directly onto your website via a link provided by Spotdraft, etc.
Tax and SOX Compliance for EdTech Businesses
The government has no separate legislation for the education sector. This means that the companies in the EdTech sector will be taxed based on the income they earn. The applicable taxes will be Income Tax, Service Tax, and Wealth Tax.
You must comply with section 802 of the Sarbanes-Oxley Act 2002 (SOX) as a business. It is essential to understand that this compliance applies to all business-to-business transactions, not just financial services.
The rules of SOX state that companies must ensure the following at all times: The information you provide and the information you receive from the other company are accurate. The records you have and receive about the transaction are secure and authentic. The information is not forged or falsified.
Employee Equity & Benefit Provisions
While the rules of SOX govern business-to-business transactions, business-to-employee transactions are governed by the provisions of the Employee Provident Fund and Miscellaneous Provisions Act 1952.
In addition, the Companies Act 2013 also has provisions that apply to companies when issuing stock options or issuing employee stock units. You will have to ensure that you provide the following benefits to your employees:
- Provident Fund - All companies must contribute to the Employee Provident Fund (EPF) on behalf of their employees. This is how your employees will receive a monthly pension once they retire.
- Contributory Pension - You will also have to make contributions for your employees who are over the age of 40 towards their pension.
- Social Security Taxes - Apart from the above, you will also have to pay Social Security Taxes (SSC). The contribution to the same will depend on the number of employees you have on your payroll.
Obligations and Compliances of FDI in an Indian Entity
As an EdTech business owner, you may be considering the option of starting up your own company. This article will discuss some of the obligations and compliances required when registering a business in India.
The following are some of the obligations and compliances for foreign direct investment (FDI) in EdTech:
- FDI in EdTech is allowed in the form of equity, non-equity and debt; however, companies can only receive capital from overseas investors if they have obtained approval from their respective regulators.
- Registration as an Entity: Before FDI can be made into an Indian entity or corporate body, it must first obtain registration as a ‘company’ under Section 8 of The Companies Act 2013 with its headquarters within India. However, suppose you wish to set up an educational institution which will not engage itself directly or indirectly with any profit-making activity. In that case, no prior approval is required under section 10A(2) read with sections 5 & 6. (Section 10A refers to ‘Prohibition on creation or operation of educational institutions without prior permission)
- Protection of Intellectual Property (IP): If you want to incorporate your EdTech business using proprietary IP, then this should be registered separately before making any investments in your company.
So, how does the collective Indian EdTech Consortium (IAMAI) plan to set things right?
The EdTech Consortium has identified three key areas where it wants to address issues.
- The first is governance, which will be handled by the IAMAI itself, with assistance from other bodies such as NASSCOM and TiE.
- The second is funding, which will be done through public-private partnerships and angel investing.
- And finally, there is the question of talent, which can only be addressed by creating a systematic approach toward education that includes training and creating an ecosystem for startups to thrive.
The Consortium’s primary focus seems to be on creating a practical policy framework for EdTech startups and ensuring they can operate smoothly and deliver quality education at affordable rates to students all over India.
What else does the code of conduct contain?
‘The Code of Conduct and Grievance Redressal mechanism will boost customer trust in the Ed Tech ecosystem. This is a huge step forward for India and the industry. We are excited to be part of it,’ said Byju Raveendran, founder and CEO of Byju’s.
The Ed Tech Consortium will also establish an industry-wide code of conduct to protect the interests of learners and companies. The code will ensure that companies are held accountable for any wrongdoing. As per a two-tier grievance mechanism, aggrieved consumers may approach the Grievance Redressal Forum with their grievances related to unfair or fraudulent practices by Indian EdTech companies. The Forum will consist of experts from academia and other stakeholders from the Ed Tech space.
The Consortium will ensure a level playing field for the industry. It will also work on creating a consensus on the quality parameters of courses and teachers, introduce common certification mechanisms and help develop a two-tier grievance redressal mechanism for students.
The IEC Consumer Protection Code consists of the following:
- Rights and expectations of students
- Responsibilities of Ed Tech providers
- Complaint handling process
- Grievance redressal mechanism
- Enforcement mechanism including penalties for non-compliance
According to the government, a wide range of compliance is related to running an Ed-Tech startup.
- You need to follow the laws, regulations and guidelines related to the education sector in India.
- You must also follow guidelines from any self-regulatory body related to your business model. For example, if you provide certification and accreditation services, you must comply with the National Assessment and Accreditation Council (NAAC) or All India Council for Technical Education (AICTE).
- E-commerce policies regarding subsidies, grants and scholarships on behalf of foreign governments are applicable in case you are providing training services abroad but located in India.
Regulating the Ed-Tech E-commerce Industry to Secure a Better Future
So, what are the takeaways from all this?
The India EdTech Consortium has worked tirelessly to create a code of conduct specifically geared towards helping startups in this sector get off the ground and succeed—we know first-hand how difficult it can be! Well, there are a lot of compliance and guidelines to be followed if you want to run an Ed-Tech startup in India. However, much support is available for those willing to make the extra effort required since Ed-Tech e-commerce is a self-regulatory body.
If you have questions about starting up on your own or want more information about TeachEdison or EdisonOS, please REACH OUT! Our team is always happy to help others look for success down their paths.