Prime Minister Narendra Modi had
announced the 'Startup India, Standup India' initiative on Independence Day the
15th Day of August, 2015. Startup India is a flagship initiative of the
Government of India, intended to build a strong eco-system for nurturing
innovation and Startups in the country that will drive sustainable economic
growth and generate large scale employment opportunities.
The Government through this initiative
aims to empower Startups to grow through innovation and design. The scheme has defined
reporting and other requisite compliances and measure to achieve the privileges
of being a Start-Up in India.
This initiative aims at promoting bank
financing for start-up ventures to boost entrepreneurship and encourage
start-ups with jobs creation.
On January 16, 2016, Government of
India has announced Action Plan that addresses all aspects of the Startup
ecosystem, in order to meet the objectives of the initiative. The highlights of
the said plan are as follows:
A.
Primary Conditions
To obtain benefits under the scheme
you should be an entity which could be a Private Limited Company, Registered
partnership or a Limited Liability Partnership incorporated or registered in
India and not more than 5 years old with annual turnover not exceeding INR 25
Crores in any preceding financial year. You should be working towards
innovation, development, deployment or commercialisation of new products,
processes or services driven by technology or intellectual property.
To avail benefits including tax
benefits, such entity should not have been formed by splitting up, or
reconstruction, of a business already in existence and should have obtained
certification from the Inter-Ministerial Board, setup for such purpose.
A business is covered under the
definition if it aims 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.
The mere act of developing
• products or services 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
would not be covered under this
definition.
B.
Secondary conditions
In order for a “Startup” to be
considered eligible, it should be
• supported by a recommendation (with
regard to innovative nature of business), in a format specified by DIPP, from
an Incubator established in a post-graduate college in India; or
• supported by an incubator which is
funded (in relation to the project) from Government of India(hereinafter
referred to as “GOI”) as part of any specified scheme to promote innovation;
or;
• supported by a recommendation (with
regard to innovative nature of business), in a format specified by DIPP, from
an Incubator recognized by GOI; or
• funded by an Incubation Fund/Angel
Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI*
that endorses innovative nature of the business; or
• funded by GOI as part of any specified
scheme 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.
* DIPP may publish a ‘negative’ list
of funds, which are not eligible for this initiative.
C.
Key Benefits
I would like to mention highlights of
the benefits being offered by this initiative:
a.
Compliance
regime based on self certification: The startups can now conduct their business without worrying about
the nuances of labour and environments laws which require stringent
compliances. The start-ups nowhave an option of self-certification through
the Start-up mobile app
which would be available from April 01, 2016
b.
Legal
support and fast track patent examination: To promote awareness and adoption of IPRs by
Startups and facilitate them in protecting and commercializing the IPRs by
providing access to high quality Intellectual Property services and resources,
including fast-track examination of patent applications and rebate in fees
c.
Faster Exit: In case of failure of a startup enterprise, the
government aims at providing speedy winding up ensuring that the capital and
resources are reallocated to more productive avenues than regulatory
compliances.
d.
Providing
Funding support with a Fund of Funds: Government plans to provide funding support to
startups within an initial corpus of INR 2,500 crores and a total of INR 10,000
crores over 4 years.
e.
Credit
Guarantee Fund: Credit
Guarantee comfort for startups would convert into increased flow of venture
debt from formal banking system
f.
Tax exemption
on Capital Gains: Exemption
will be given to persons who have capital gains during the year, if they have
invested such capital gains in the Fund of Funds recognized by the Government.
In addition, existing capital gain tax exemption for investment in newly formed
manufacturing MSMEs by individuals shall be extended to all Startups.
g.
Tax Exemption
for 3 years: This will
promote growth and ensure working capital availability. The exemption shall be
available subject to non-distribution of dividend by the Startup.
h.
Tax Exemption
on investments above Fair Market Value: The step aims to encourage seed investment in
startups. Currently, investment by venture capital funds in Startups is
exempted from operations of section 56(2) (viib). The same shall be extended to
investment made by incubators in the Startups
By this scheme government will cut
taxes on start-ups and help pump more than a billion dollars into new Indian
companies. The efforts as expressed in Mr. Modi’s Start-up India Action Plan,
are designed to remove regulatory hurdles that entrepreneurs generally suffer
in new businesses or establishments.
PRIYANKA GERA
pri.gera05@gmail.com
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