Start Up - India

Article posted by: office@indialawoffices.com

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Startup India Scheme was first mentioned by our Prime Minister Narendra Modi on August 15, 2015 while addressing the nation on Independence Day. The Scheme was finally launched on January 16, 2016.

The Startup India scheme is a flagship initiative of the Indian Government to provide a platform to the budding entrepreneurs of the country to flourish. This is an initiative of our PM to bring our country at par with other nations in terms of support given to innovative ideas and thoughts along with financial support, as in the recent years a lot of startup companies have been receiving funds from Foreign Venture Capitalists.

Eligibility criteria for an Entity to avail the benefit under the scheme:

To be eligible to avail the benefit of the Scheme the following requirements have to be met:

  •  The entity must be a Private Limited Company/LLP/Partnership Firm
  • The entity should be at max 5 years old.
  • The turnover of the entity should not be more that 25 crore.
  • The entity should develop some innovative product which should add to the value of customers and should be commercial.
  • Then the entity needs to get an approval from the Inter-ministerial Board set up by DIPP that the company is innovative and further:
  • A recommendation 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), 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; or
  • be funded by the Government of India 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.

Tax benefits under the scheme:

In order to promote more and more entrepreneurs the Scheme certain tax benefits and exemptions for the initial years:

  • The profits which would be earned by a startup venture would be tax-free for 3 years.
  • The scheme would provide tax exemption on capital gains if money is invested in another start up. This would encourage more and more Startups.
  • Tax exemption on investment above fair market value to encourage seed-capital investment in Startups as in the context of Startups, where the idea is at conceptualization or development stage, it is often difficult to determine the FMV of such shares.

Other Exemptions under Startup India Scheme:

  • No Labour Inspection:

The startup ventures would not be subject to labour inspection for 3 years of their launch.

  • Easy exit policy:

If the venture does not prove to be fruitful or fails, Government would assist the entrepreneurs in finding solutions for their problems but if they fail again Government provides them easy exit policy.

Funding support and incentives under the Scheme:

  • Government would create Rs. 10,000 crore corpus fund for development and growth of innovation driven enterprises. It will be Rs. 2500 crore a year for four years.
  • The scheme also provides for establishment of Credit guarantee fund and special scheme for women entrepreneurs.
  • A National Credit Guarantee Trust Company is being envisaged with a budgetary allocation of Rs 500 crore per year for the next four years.

Other benefits under the Scheme:

  • The scheme intends to liberalise and fast track the patent applications for startups intellectual property rights protection with 80% cost rebate.
  •  The Schemes aims to encourage startups to participate in public procurement by easing norms of minimum turnover/experience.
  •  Government plans to start Atal Innovation Mission to give an impetus to innovation and encouraging talent among young people by instituting national awards.
  • There would be core innovation programmes for 5 lakh schools across the country.
  • Self certification: The objective of compliance regime based on self certification is to reduce the regulatory burden on startups as regulatory formalities requiring compliance with various labour and environment laws are time consuming and difficult in nature. This self-certification will apply to laws like payment of gratuity, contract labour, Employees Provident Fund, water and air pollution acts.

Infrastructure facility:

  • The Government further aims to provide sector specific incubators and 500 tinkering labs per-incubation.
  • The scheme among the other benefits amis to provde Public-private partnership (PPP) model for 35 new incubators, 7 new research parks, 31 innovation centres at national institutes and 5 new Bio clusters will be set up to help Biotech Sector.
  • In order to promote Startups 5 new Bio-clusters, 50 new Bio-Incubators, 150 technology transfer offices and 20 Bio-Connect offices will be set up in research institutes and universities across India.
  • Setting-up 13 Startup Centres: Annual funding support of INR 50 lakhs shall be provided for three years for encouraging student driven Startups from the host institute.

Registration process:

The Startup Scheme provides for a trouble-free registration process. For registration of the Startup ventures there would be mobile apps, portals for registration of startups in a single day starting from the first day of the new financial year. The Mobile App shall have backend integration with Ministry of Corporate Affairs and Registrar of Firms for faultless information exchange and processing of the registration application.

Impediments and challenges for the Scheme:

  • Lack of safeguards to protects Indian Startups to be taken over by Foreign Companies as nowadays many Startups work for few years and then sell it to foreign investors who can pay them good and take the start up further with their capital.
  • The Scheme defines start-ups ‘driven by technology or intellectual property’ prevents others from availing the incentives.
  • There can be possibilities of abuse of Labour Laws as the startup ventures would not be inspected for three years.

This scheme would give a new dimension to entrepreneurship and assist in setting up a network of Startups in India. Our country is flooded with people carrying great innovative ideas in their minds and this Scheme would give them the push to materialize those ideas in shaping the economy of the country. This initiative would also boost employment generation and wealth creation. However, we still have to see how well it is implemented and how responsive and receptive the beneficiaries act.

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