Introduction

Startup India is a drive initiated by the Government of India to build a strong eco-system for nurturing the innovation and Startups in the Country so as to take India a Step forward in becoming a developed Country. This shall be able to generate more employment opportunities alongwith the economic growth of the Country. It has given opportunity to many unemployed persons to come with their innovative ideas and designs.

Setting up Process

Startup definition for the purpose of Government Schemes, means an entity, incorporated or registered in India not prior to five years, with an annual turnover not exceeding INR 25 Crores in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. Provided that such entity is not formed by splitting up or reconstruction, of a business already in existence.

Further the entity shall lose its existence of Startup if in any preceding financial years it has achieved the turnover of INR 25 Crores or it has completed 5 years from the date of incorporation/registration.

The Startup entity can be incorporated in either of the following form:

-          Partnership firm [ a duly registered partnership deed under the Partnership Act, 1932]

-          Limited Liability Partnership [LLP] firm duly incorporated under the Limited Liability Act, 2008

-          Private Limited Company incorporated under the Companies Act, 2013.

A proprietorship or public limited company is not eligible as Startup, whereas the One Person Company, being a Private Limited Company is entitled to be a Startup.

A business is deemed to be recognized as Startup only 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.

For the ease of registration and other details regarding Startups the Government of India has launched the Startup India portal and mobile app w.e.f. 1st April, 2016, wherein the Action plan as to how startups have to go about doing business is completely provided.

Further to ease out the queries of the various startups the Government of India, Department of Industrial Policy & Promotion (DIPP) has release the Frequently Asked Questions (FAQs). The Government from every possible way is trying to reach out to the Startups to come up with their innovation and ideas.

The Government in order to do the proper hand holding for the startups have provided a complete action plan to the startups so that they can easily start their own ventures after duly fulfilling all the requirements.

In this regard The Ministry of Human Resource Development and the Department of Science and Technology have agreed to partner in an initiative to set up over 75 such startup support hubs in the National Institutes of Technology (NITs), the Indian Institutes of Information Technology (IIITs), the Indian Institutes of Science Education and Research (IISERs) and National Institutes of Pharmaceutical Education and Research (NIPERs).The Reserve Bank of India said it will take steps to help improve the ‘ease of doing business’ in the country and contribute to an ecosystem that is conducive for the growth of start-up businesses.

Startups Eligible for Startup India Tax Exemptions & Incentives

As reproduced before that a business is considered a Startup under the Startup India Action Plan if it aims to develop and commercialize new products or services or process or significantly improved existing product or service or process, that will create or add value for customers or workflow.

Eligibility of Startup

-          Be supported by a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Promotion & policy (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 Government of India (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 Securities Exchange Board of India (SEBI) that endorses innovative nature of 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.

“Startup to be eligible shall be supported by recommendation for innovative nature of business, supported by incubator which shall be funded by GOI, shall have a patent granted by the Indian patent and Trademark office”

Exemptions

In the Budget 2016-17 to promote the Entrepreneurship the government has announced a number of incentives for Startups, allowing 100 per cent deduction of profits for three out of five years for start-ups set up during April 2016 to March 2019. Individuals and Hindu Undivided Family (HUF) setting up start-ups by deploying capital gains from sale of residential property will also get tax relief.

Further, in order to boost the start-up ecosystem, the government has proposed to provide exemption from capital gains tax if the long term capital gains proceeds are invested in notified funds. The gains will have to be invested for at least three years to claim exemption, while the investment in the units of the specified fund shall be allowed up to Rs. 50 lakh.

“Startups have been provided with various exemptions – 100% tax exemption for first three years of business, capital gain tax exemption and other labour laws related exemptions”

The government has also decided to extend provisions of Section 54GB of the Income Tax Act, which would provide significant incentives to start-ups. This section provides tax relief to an individual or Hindu Undivided Family (HUF) willing to set up a start-up company by selling a residential property to invest in the shares of such company.

Other exemptions that shall be provided to Startups will be

-          Refund of 80% patent fee;

-          Labour & Environment Law exemptions. No inspection from PF, ESIC & Environment department for 3 years;

-          Easy Exit from the Startup within 90 days.

The Startups shall be eligible for tax benefits only when they have obtained certification from the Inter-Ministerial Board, set-up for such purpose. The Inter-Ministerial Board set-up 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.

Sustainability

Whether this plan of Government of Startup India will be fruitful and whether the same will bring a revolution for the small vendors? With economy being opening to the venture capitalist the Government is of the view that Foreign Investors as well as the Domestic Investors are interested in investing money in the Startups with the innovative ideas and that can be proved to be a profitable venture. As the Government is trying to ease out norms for doing business in India it is expected that this initiative of Startup India will not only boost the economy but will have a great impact on the overall economic structure.