Startups Scheme by Government of India
- April 10, 2016
- by
- Prince Kumar
Startup India Scheme launched by GoI
The Government of India on 16th January, 2016 announced a
series of programs, incentives and exemptions for Startups in India. The
flagship Startup India initiative announced by the Prime Minister, Narender
Modi is aimed at creating a strong and vibrant startup eco-system in India and
to create a culture of Entrepreneurship. In this article, we look at a
startup eligibility criteria for the Startup India program.
In recent times, Indian startups are increasingly looking to
move outside India owing to various difficulties faced by them in conducting
business in India such as bureaucratic processes, lengthy incorporations and
liquidations, restrictions on structuring transactions, problems in early-stage
funding and exits, and complying with myriad laws and regulations. With the
objective of incentivising young Indian entrepreneurs to explore and pursue
their business ideas in India, and to avoid the exodus of talented
entrepreneurs from India, the Government's 'Startup India' Action Plan
introduces a separate regulatory framework for startups, emphasising on
promoting innovation and facilitating ease of regulatory compliance. The
Government also hopes that the Action Plan will accelerate growth of startups
in sectors other than technology such as agriculture, manufacturing, social
sector, healthcare, education, etc. across India, including tier 2 and 3
cities, and other semi-urban and rural areas.
The Action Plan broadly deals with: (a) simplification of
processes and handholding for startups; (b) funding support and related
incentives; and (c) industry-academia partnership and incubation support to
boost the startup ecosystem.
“STARTUPS”
As per the announcement made, an entity is considered as
startup if:
- it is a private limited company/ partnership firm/ limited
liability partnership;
- it has been in existence for less than 5 years;
- its annual turnover has not exceeded Rs. 25 Cr. in any
financial year;
- it is working towards innovation, development, deployment
or commercialization of new products, processes or services driven by
technology or intellectual property;
- it should not be formed by splitting up, or
reconstruction, of a business already in existence;
Startups
and eligibility for the benefit announced?
A business is considered to be a startup under the Startup India
Action Plan if it aims to develop and commercialize:
§ New product or service or process;
§ Significantly improved existing product or service or
process, that will create or add value for customers or workflow.
Further, in order for a “Startup” to be considered eligible, the
Startup 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
§ Be supported by an incubator which is funded (in relation to
the project) from GoI as part of any specified scheme to promote innovation; or
§ Be supported by a recommendation (with regard to innovative
nature of business), in a format specified by DIPP, from an Incubator
recognized by GoI; or
§ Be funded by an Incubation Fund/Angel Fund/ Private Equity
Fund/ Accelerator/Angel Network duly registered with SEBI that endorses
innovative nature of the business;
§ Be funded by GoI as part of any specified scheme to promote
innovation;
§ Have a patent granted by the Indian Patent and Trademark
Office in areas affiliated with the nature of business being promoted.
Startups NOT Eligible for Startup India Action Plan
The mere act of developing of products or services of the
following nature DO NOT make an entity eligible
for incentives:
§ 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.
Obtaining Startup Tax Exemption
under the Startup India Initiative
Startup
would be eligible to obtain tax benefits only after it has obtained
certification from the Inter-Ministerial Board, setup for such purpose.
The Inter-Ministerial Board setup by DIPP would validate the
innovative nature of the business for granting tax related benefits. However,
approval from the Inter-Ministerial Board shall not in any manner, limit or
absolve the Startup from any liability incurred in case of any
misrepresentation/ fraud arising from submission of such application and/ or
supporting such application.
Tax
Exemption:
1.
Tax exemption on Investment above
fair market value: In line with the exemption available to venture capital
funds to invest in startups above fair market value, Investments made by the
incubators above FMV shall also be exempeted.
2.
Tax exemption to startups for 3
years. This exemption is available for the startups set up after 01st
April, 2016.
3.
Tax exemption on capital gains:
Exemption shall be given in case capital gains are invested in the fund of
funds recognized by the government.
In addition, existing capital gain
tax exemption for investment in newly formed MSMEs by individual shall be
extended to all startups. If somebody invest the money received by selling
his/her own property in his/her startup, he/she shall be given exemption from
capital gain tax.
Other
Benefits and initiatives
1.
Establishment of credit guarantee
fund for the startups with a budgetary corpus of INR 500 cr per year for the
next 4 years.
2.
Funding support through fund of
funds with a corpus of INR 10000 cr.
3.
Facilities for faster exists for
startup. As per the proposed changes, startups may be wound up within a period
of 90 days.
4.
Relaxation in public procurement
5.
80% rebate on filing patent
application by startups and fast track mechanisms of startup patent
application.
6.
Panel of facilitators to provide
legal support and assist in filing of patent application
7.
To serve as the single platform for
information exchange and interacting with the government and regulatory
institution, a mobile app shall be available from April 2016.
8.
Introduction of compliance regime
based self certification
9.
Establishment of Startup India Hub.
10.
Relaxation for inspection under the
HR laws for first 3 years.
Analysis of the scheme
0
Many entrepreneurs were excited by the announcements made by Prime Minister Narendra Modi as part of the Startup India Action Plan. There’s no doubt the measures were significant, but they do beg the question, are all the startups really eligible for the benefits that were announced?
Many entrepreneurs were excited by the announcements made by Prime Minister Narendra Modi as part of the Startup India Action Plan. There’s no doubt the measures were significant, but they do beg the question, are all the startups really eligible for the benefits that were announced?
To answer this question let’s think the below
mention points:
1.
One
of the eligibility criteria states that “The product or service
should be a new one or a significantly improved version of existing services or
products.”
Let’s take the example
of startups who are engaged in creating and developing online marketplaces like
Flipkart and Amazon. So a new startup engaged in the
same field may not be eligible unless its product is significantly improved
than what existing players provide.
2. Another eligibility criteria states that the startup should get a recommendation letter from the recognized
incubator cell or be recognized by the GoI or should be funded by recognized
funds. Now this will be quite a task for startups.
In our estimate, going by these criteria,
roughly 60% of existing startups could be rendered ineligible for the Startup
India plan.
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