#Startup India is a historic and ambitious initiate of Modi’s Government, which is intended to build and develop a strong eco-system for promoting design, innovation, Startups and encourage young entrepreneurs in India. The Startup India initiative will drive sustainable economic growth and will also generate employment opportunities at large scale in the country. The Department of Industrial Policy and Promotion recently came up with an Action Plan for promoting Startup Ecosystems in the Country. In the action plan released by the Department of Industrial Policy and Promotion, the Government announced its plans for promoting the Startup ecosystems and encouraging entrepreneurship to accelerate growth. In order to qualify for tax and other benefits provided by the Modi’s government under Startup India initiative, an entity must satisfy the following conditions –
- Registered as a partnership under the provisions of Indian Partnership Act, 1932; or
- Incorporated as an limited liability partnership under the provisions of the Limited Liability Partnership Act, 2008; or
- Incorporated as a Company under the provisions of Companies Act, 2013 or any erstwhile act; and;
- Turnover of such entity must not exceed rupees twenty five crores in any preceding financial year; and
- Must be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property; and;
- Must not completed five years from the date of incorporation or registration;
- Must not be formed by splitting up, or reconstruction of a business already in existence; and
- It has obtained certification from the Inter – Ministerial Board, setup by the Department of Industry Policy and Promotion for validating the innovative nature of business for granting of tax related benefits.
Any entity seeking certification from the Inter – Ministerial Board setup by the Department of Industry Policy and Promotion for validating the innovative nature of business for granting tax related benefits under this initiative, must aim to develop and commercialize –
- A new product or service or process; or
- A significantly improved existing product or service or process that will create or add value for customers or workflow.
An entity won’t qualify for availing tax benefits under this initiative, if the same is engaged in the development of a –
- product or service or processes which do not have potential for commercialization; or
- undifferentiated products or services or processes; or
- Products or services or processes with no or limited incremental value for customers or workflow.
Further in order to qualify for availing benefits under this initiative, a Startup should –
- Be supported by a recommendation (with regard to innovative nature of business), in a format specified by the Department of Industrial Policy and Promotion, from an Incubator established in a post-graduate college in India; or
- be supported by an incubator which is funded (in relation to the project) from the Government of India as part of any specified initiative to promote innovation; or
- be supported by a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from an Incubator recognized by Government of India; or
- be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/Accelerator/Angel Network duly registered with Securities and Exchange Board of India that endorses innovative nature of the business; or
- be funded by Government of India as part of any specified initiative to promote innovation; or
- Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.
The Startup India initiative of Prime Minister Modi will work across the following areas:
- Simplification of procedures and handholding;
- Funding Support and Incentives;
- Incubation and Industry – Academic Partnership
SIMPLIFICATION OF PROCEDURES AND HANDHOLDING
Compliance Regime based on Self Certification
The Government of India under the leadership of Prime Minister Shri Narendra Modi has been working aggressively in the past months to make regulatory compliances friendly and flexible for the businesses. In order to simplify few labour and environmental law compliances for the Startups, Modi Government has allowed self-certification compliance mechanism for Startups presently with nine labour and environmental laws viz.,
- The Building and Other Constructions Worker’s (Regulation of Employment and Condition of Service) Act, 1996;
- The Payment of Gratuity Act, 1972;
- The Contract Labour (Regulation and Abolition) Act, 1970;
- The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Services) Act, 1979;
- The Employees Provident Funds and Miscellaneous Provisions Act, 1952;
- the Employees State Insurance Act, 1948;
- The Water (Prevention and Control of Pollution) Act, 1974;
- The Water (Prevention and Control of Pollution) Cess (Amendment) Act, 2003; and
- The Air (Prevention and Control of Pollution) Act, 1981.
It has been also announced by PM Modi that no inspections shall be conducted for a period of three years in the case of labour laws. However inspection proceedings may be initiated against a Startup on receipt of credible and verifiable complaint of violations, filed in writing and approved by at least one level senior to the inspecting officer. All startups will be able to self-certified compliance for environmental laws in case they are falling under ‘white’ category.
Startup India Hub
A Startup India Hub will be established as a single point contact hub, which will help startups and entrepreneurs like a friend, mentor and guide to hold their hand and walk with them through their entrepreneurship journey. It will also help the Startups and entrepreneurs in securing seed funding, incubation and venture capital investments. It will also promote innovation and research and development initiatives in the country.
Rolling-out of Mobile App and Portal
The Government will introduce a Mobile App, which will be used as a technology platform exclusively for startups for seeking registrations with the relevant agencies of the Government. It has been observed in the past that seeking regulatory permissions and registration with various government agencies is a painful job, which takes lot of time and resources. To facilitate online and speedy approvals and a single point online registration portal, this mobile application will be developed to help entrepreneurs and Startups. It will save Startup’s time and resources and make registrations and compliance filings incredibly simple and easy. It will also provide checklists and various online tools to understand the compliance and registration requirements for startups. Startups will be able to do filings and status of applications through the Mobile Application itself.
Legal Support and Fast-tracking Patent Examination at Lower Costs
Large numbers of entrepreneurs are unaware about the importance of Intellectual Property and the measures to keep it protected from infringement. Intellectual Property plays pivotal role in the success of a Startup. Therefore, in order to promote awareness and adoption of Intellectual Property Rights among Startups and for facilitating them in protecting and commercialization of their Intellectual Properties, Government will provide high quality Intellectual Property Services and resources including fast-track examination of patent applications and will reduce fee for patent registrations by 80%. Reduction of patent application fee by 80% will certainly help startups in saving their hard earned revenue or seed funding in the crucial years. This initiative is being launched initially for the period of one year on a pilot basis; based on the experience gained, further steps will be taken by the Government of India. Further it is also proposed that patent applications of Startups will be fast-tracked for examination and disposal, to enable them to realize the value of their Intellectual Property Rights as early as possible.
Relaxed Norms of Public Procurement for Startups
To provide equal opportunity to Startups, Government will increase its procurements from the Startups by providing exemptions to (in the manufacturing sector) from the criteria of ‘turnover’ and ‘prior experience’. To avail the benefits under this initiative, Startups must have their own manufacturing facility in India and it will have to demonstrate their capabilities to execute the projects up to the satisfaction of the Government. The Government will not provide any relaxation to Startups in terms of quality standards or technical parameters.
Faster Exit for Startups
Many Startups failed in the initial years of their operation because of lack of funding, technical capabilities, lesser support from the government or for many other reasons. Once a Startup fails, it becomes difficult for the founders to wind up their venture and try something else because the procedural requirements for shut down and liquidate a business are very complex in India. In order to provide an easy exit route to the Startups, the government will frame new laws, which will allow a failed business to exit or wind up quickly without following the rigorous process of existing insolvency and wind up laws. In this regard, the Insolvency and Bankruptcy Bill, 2015, which is tabled in the Lok Sabha in December 2015 contains provisions for fast track and /or voluntary closure of business.
FUNDING SUPPORT AND INCENTIVES
Providing Funding Support through a Funds of Funds with a Corpus of rupees ten thousands crore
Startups in India have very limited or rare access to finance and debt capital. Very often Startups fail because banks and financial institutions do not provide working capital loans because Startups fail provide collaterals. Access to finance is key factor for the success of any business idea and startup. Therefore, Government has decided to set up a fund with the initial corpus of rupees two thousand and five hundred cores and a total corpus of rupees ten thousands crores over a period of four years to provide easy access to finance to Startups. The Government will not be directly investing in Startups but shall participate in the capital of Securities and Exchange Board of India registered Venture Capital Funds and such Venture Capital Funds will be directly investing in Startups.
Credit Guarantee Funds for Startups
The Government of India shall establish National Credit Guarantee Trust Company (‘NCGTC’). The Government of India through National Credit Guarantee Trust Company or through SIDBI will guarantee debts capital of Startups, which has been funded by Banks and Financial Institution. This initiative will encourage banks and financial institutions for providing debt capital such as working capital loan, credit facilities etc. to Startups. The present corpus of fund will be rupees five hundred crore for next four years.
Tax Exemptions on Capital Gains
The Modi Government has decided to provide tax exemptions to Startups on capital gain arising from sale of capital assets to promote investment into Startups.
Income Tax Exemption to Startup for three years
In order to support growth of startups, provide additional working capital and provide competitive platform to startups, the Modi Government has exempted Startups from income tax on their profits for three years. The tax exemption provided by the government will facilitate growth of business and meet working capital requirement in the initial years of operations. Any startup distributing dividend or having a track record of distributing dividends among its shareholders won’t qualify for tax exemptions under this initiative.
Tax Exemption on Investments above Fair Market Value
The Income Tax Act, 1961 provides that if any company receives any premium for issue of shares which exceeds the Fair Market Value of such shares, such premium becomes taxable in the hands of recipient as the Income from Other Sources. Presently VC investments in Startups are exempted under the provisions of Income Tax Act, 1961. The same exemption is now being extended to investments made by incubators in the Startups.
INCUBATION & INDUSTRY ACADEMIC PARTNERSHIPS
Organizing Startup Fests for Showcasing Innovation and Providing a Collaboration Platform
The Modi Government will introduce and organize Startup Fests at national and international level. These Startup Fests will provide a platform to Startups and Young Entrepreneurs to showcase their ideas and work with a large audience comprising of angel investors, mentors and fellow Startups.
Atal Innovation Mission (AIM) with Self – Employment and Talent Utilization (SETU) Program
Atal Innovation Mission established by the Government of India will promote innovation and entrepreneurship in the country by providing a platform where innovative ideas are generated. The Government will further strengthening incubation facilities and provide pre-incubation training in various technology areas in collaboration with various academic institutions. An Innovation Award will in instituted and conferred to the entrepreneurs and Startups who has done something incredibly amazing in their entrepreneurship journey.
Building Innovation Centres at National Institutes
The Government will build Innovation Centres at various academic institutes to support research and development and innovation.
CONCLUSION
The Government of India under the able leadership of Prime Minister Shri Narendra Modi has taken various measures to improve business climate of the country and to accelerate the economic growth Modi Government is working very aggressively towards making India an attractive investment destination. Recently Modi Government has launched ‘EBIZ Portal’ for providing single window clearance to the businesses and entrepreneurs for obtaining regulatory permissions and do regulatory filings online and simplified procedural requirements to improve the regulatory regime of the country. Modi Government has taken various initiatives such as ‘Make In India’ ‘Digital India’, ‘Startup India’ etc to make India a investor centric hub. The Startup India plan is certainly going to boost the startup ecosystem in India and will play instrumental role in promoting design, innovation, entrepreneurship, technology and research and development in the country. Thousands of budding entrepreneurs will be encouraged and get benefited from this initiative in their entrepreneurship journey.
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