Startup India Standup India…
Young Indians today have the conviction to venture out on their own and a conducive ecosystem lets them watch their ideas come to life. In today’s environment we have more Startups and entrepreneurs than ever before and the movement is at the cusp of a revolution. However, many Startups do not reach their full potential due to limited guidance and access.The Government of India has taken various measures to improve the ease of doing business and is also building an exciting and enabling environment for these Startups, with the launch of the “Startup India” movement.
Startup India is a flagship initiative of the Government of India, intended to build a strong ecosystem that is conducive for the growth of startup businesses, to 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 campaign was first announced by our Honorable Prime Minister Shri. Narendra Modi on 15thAugust, 2015. And it was launched on 16th January 2016. Let’s have detailed insights of scheme.
Startup Business:
Startup means an entity, incorporated or registered in India not prior to ten* years, with annual turnover not exceeding INR 100* crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
*Notification No. G.S.R. 127 (E). Dated 19th February 2019.
Provided that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.
A Chart depicting the eligibility criteria for Startup Companies:
Step to Register Business under Startup India
Step 1: Incorporate your business
Before registering with Startup India, organization has to registered as Private Limited Company or a Partnership firm or a Limited Liability Partnership by following all the requisite procedures.
Step 2: Registration with Startup India
Once business is incorporated, it can apply to register for Startup India. Entire process is simple and online, you just need to do is log on to the Startup India website and fill up the form with details of your business and upload certain documents.
Step 3: Documents to be uploaded (in PDF format only)
a) Recommendation/support letter
A letter of recommendation must be submitted along with the registration form. Any of the below will be valid:
(i) A recommendation (regarding innovative nature of business) from an Incubator established in a post-graduate college in India, in a format specified by the Department of Industrial Policy and Promotion; or
(ii) A letter of support by an incubator, which is funded (in relation to the project) by Government of India as part of any specified scheme to promote innovation; or
(iii) A letter of recommendation (regarding innovative nature of business), from an Incubator, recognized by the Government of India in DIPP specified format;or
(iv) A letter of funding of not less than 20% in equity, by Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network, duly registered with SEBI that endorses innovative nature of the business or
(v) A letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; OR
(vi) A patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of the business being promoted.
b) Certificate of incorporation of your company/LLP (Registration Certificate in case of partnership).
c) A brief description of the innovative nature of your products/services.
Step 4: Details for Tax Benefits
Startupshave been given certain tax benefits, to avail these benefits, they must be certified by the Inter-Ministerial Board (IMB). Start-ups recognized by DIPP, can now directly avail IPR related benefits without requiring any additional certification from IMB.
Step 5: Self certification for satisfaction for eligibility conditions to get identify as Startup as per Startup India.
Step 6: Recognition number
On applying you will immediately get a recognition number for your startup. The certificate of recognition will be issued after the examination of all your documents.
Be careful while uploading the document, if it is found that the required document is not uploaded/wrong document uploaded or a document is forged you shall be liable to a fine of 50% of your paid-up capital of the startup with a minimum fine of Rs. 25,000.
Advantages for Business under Startup India:
- Single Window Clearance even with the help of a mobile application.
- 10,000 Crores fund of funds
- 80% reduction in patent registration fee and schemes to provide IPR protection to start-ups and new firms.
- Modified and more friendly Bankruptcy Code to ensure 90-day exit window.
- Income Tax Reliefs for Startup and Investor in Startup
- Innovation hub under Atal Innovation Mission.
- Self-certification compliance and Encourage entrepreneurship.
- Stand India across the world as a start-up hub.
Startup India Hub:
Startup India hub was operationalized on 1st April, 2016 to resolve queries and provide handholding support to Startups. The hub has handled more than 3,11,851 queries from Startups through telephone, email and Twitter. To seek clarifications pertaining to Certificate of Recognition, Certificate of Eligibility to avail tax benefits, seeking information on incubators or funding, one can get in touch with the Hub on Email ID: dipp-startups@nic.in.Startup India Hub has partnered with various organizations to onboard entrepreneurs and investors, as well as build knowledge modules. To ensure accessibility across various platforms, dedicated apps are also available on both Android and iOS.
Tax Relief:
Government of India has notified and amended few sections of Income Tax Acr 1961 to give various tax benefits to Startup India Business.
Section 80 IAC:
To promote growth of Startup and for working capital requirement, Startup may apply for Tax exemption under section 80 IAC of the Income Tax Act. Post getting clearance for Tax exemption, the Startup can avail tax holiday for 3 consecutive financial years out of its first ten years since incorporation.
Eligibility Criteria for applying to Income Tax exemption (80IAC):
The entity should be a recognized Startup, it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.
Only Private limited or aLLP is eligible for Tax exemption under Section 80IAC and The Startup should have been incorporated after 1st April, 2016
Section 54EE:
A new section 54 EE has been inserted in the Income Tax Act for the eligible startups to exempt their tax on a long-term capital gain if such a long-term capital gain or a part thereof is invested in a fund notified by Government within a period of six months from the date of transfer of the asset. The maximum amount that can be invested in the long-term specified asset is Rs 50 lakh. Such amount shall be remain invested in the specified fund for a period of 3 years.
Section 56 (2)(vii): Tax exemption on investments above the fair market value:
To prevent incidence of “Angel Tax” on angel investors investing in approved start-ups, a ‘startup’ company receiving monies as consideration for issue of shares in excess of fair market value would not be covered under the provisions of section 56(2)(viib) of the Act,subject to below conditions:
Aggregate paid-up share capital and share premium of the start-up after the proposed issue of shares does not exceed INR 250 million. For the purpose of computing the aggregate amount of paid-up share capital and share premium of INR 250 million, the shares issued to the following persons shall not be included:
A non-resident or A venture capital company or a venture capital fund registered as Category I AIFs; or A specified company* (*means a company whose shares are frequently traded within the meaning of SEBI”)
Section 54GB:
The existing provisions u/s 54GB allow the exemption from tax on long-term capital gains on the sale of a residential property. Now this section has been amended to include exemption on capital gains invested in eligible start-ups also.
Thus, if an individual or HUF sells a residential property and invests the capital gains to subscribe to 50% or more equity shares of the eligible startups, then tax on long term capital will be exempt provided that such shares are not sold or transferred within 5 years from the date of their acquisition.The startups should use the amount invested to purchase assets and should not transfer assets purchased within 5 years from the date of its purchase.This exemption will boost the investment in eligible startups and will promote their growth.
Set off of carry forward losses and capital gains allowed in case of a change in Shareholding pattern.
The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders of such company who held shares carrying voting power on the last day of the year in which the loss was incurred continue to hold shares on the last day of previous year in which such loss is to be carry forward.It has been provided that as long as all the original shareholders of the Company at the end of the financial year in which the loss was incurred continue to be shareholders of such shares in the financial year in which the loss is to be set off, the benefit of carry forward of loss would be available. The restriction of holding of 51% of voting rights to be remaining unchanged u/s 79 has been relaxed in case of eligible startups.
Benefits in Intellectual Property Rights:
The scheme for Startup Intellectual Property Protection (SIPP) shall facilitate filing of Patents, Trademarks and Designs by innovative Startups. Various measures being taken in this regard:
Panel of facilitators to assist in filing of IP applications, facilitators will be responsible for providing general advisory on different IPRs as also information on protecting and promoting IPRs in other countries. They shall also provide assistance in filing and disposal of the IP applications, including appearing on behalf of Startups at hearings and contesting opposition, if any, by other parties, till final disposal of the IPR application.
Under this scheme, the Government shall bear entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and Startups shall bear the cost of only the statutory fees payable.
Also, fast tracks the process of filing the patents and further grants a rebate of 80% in filing patents. This rebate will be provided on the total value of the patent fees and shall be provided once the patent is filed.
Funding for Startup Business:
Venture capital funds from abroad and angel investors are proving to be a big boon for Indian startup story. Indian startups such as Flipkart, Olacabs, Snapdeal, Hike, Shopclues, Freecharge, Inmobi etc. receive various rounds of follow-on financing as well either from their existing investors or from any new investor. These various rounds of funding also help these firms to hire more talent into the company. This helps the company to grow strategically and also add some more experienced people in the firm.
Under the Start-Up India Action Plan, the Prime Minister has also announced Rs. 10,000 Crores fund for new enterprises. Government has already launched PMMY, the MUDRA Bank, a new institution for development &refinancing activities relating to micro units with a refinance fund of Rs. 2000 Crores.The Government is planning to set up a credit guarantee fund to provide funding facilities to startups in the country, it has a corpus of Rs 2,000 crore and will be managed by the DIPP. The fund is however, yet to be made operational.
SoftBank, Japan’s telecom and technology conglomerate, is one of the biggest investors in the Indian startup ecosystem. SoftBank CEO Masayoshi Son recently said that his company would be investing $10 billion in India by 2022. It has already invested close to $8 billion till date. Google has been investing heavily in the Indian startup ecosystem over the last 3 years and has brought highly successful global programs to India like the Launchpad program for early stage startups and Launchpad accelerator program for mature startups. Oracle has launched The Oracle Startup Cloud Accelerator Program, which was incubated in April 2016, Oracle has successfully scheduled 4 batches forStartup entrepreneurs.
Foreign Direct Investment in Startup:
FDI policy 2017 has allowed startups to raise 100% funds from SEBI (Securities and Exchange Board of India) registered Foreign Venture Capital Investors (hereinafter referred to as “FVCI”) under the automatic route. Start-ups can issue equity or equity linked instruments or debt instruments to FVCI against receipt of foreign remittance, as per the FEMA Regulation. If a startup is organized as a partnership firm or aLLP, the investment can be made in the capital or through any profit-sharing arrangement. In addition, start-ups can issue convertible notes to person resident outside India subject to fulfilment of certain conditions.
Exit Strategy:
The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 hasprovisions for the fast track and / or voluntary closure of businesses. In terms of the IBB, Startups with simple debt structures or those meeting such criteria as may be specified may be wound up within a period of 90 days from making of an application for winding up on a fast track basis. In such instances, an insolvency resolution professional shall be appointed for the Startup, who shall be in charge of the company (the promoters and management shall no longer run the company) for liquidating its assets and paying its creditors within six months of such appointment. On appointment of the insolvency resolution professional, the liquidator shall be responsible for the swift closure of the business, sale of assets and repayment of creditors in accordance with the distribution waterfall set out in the IBB. This process will respect the concept of limited liability.
Governments Initiative:
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 startup support hubs in the National Institutes of Technology, the Indian Institutes of Information Technology, the Indian Institutes of Science Education and Research and National Institutes of Pharmaceutical Education and Research. Reserve Bank of India takes 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.
Educational Institution Alliances:
NIT-Silchar is one of the institutions of the country to have joined the program. IIT Madras is also linked with this campaign. The institution has been successfully managing seven research parks that has incubated many start-ups.Startup India has launched Startup Academia Alliance Program for academic scholars and startups, aimed at bridging scientific research and its industrial applications gap, and increase the efficacy of technologies for wide impact. The program is being organized in partnership with The Regional Centre for Biotechnology, The Energy and Resources Institute (TERI), The Council on Energy, Environment and Water, and The TERI School of Advanced Studies. Also, Startup India has launched an interactive online learning and development module to educate Startups and aspiring entrepreneurs.
Journey So Far:
Government has received 1,97,967 application for registration under Startup India, of which 17360 got recognized as Startup Business, however only 182 of recognized startup have been funded by Government fund as per data available till 31st March 2019, and only 88 startup recognized for to get tax benefits till August 2018.
Conclusion:
Hence, taking into consideration all the above developments, it can be concluded that indigenous startups will not only make the lives of the people easier through their affordable and convenient services but will also act as a major booster for the development and the progress initiatives like tax relief, IPR protection, Startup India Hub etc. Startup India scheme has enough potential to make Indian Youth Job Creator From Job Seeker!!
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