Start-Ups in India
Startup India is an initiative of the Government of India. The campaign was first announced by Indian Prime Minister, Narendra Modi during his speech in 15 August 2015.
The action plan of this initiative is focussing on three areas:
- Simplification and Handholding.
- Funding Support and Incentives.
- Industry-Academia Partnership and Incubation.
An additional area relating to this initiative is to discard restrictive States Government policies within this domain, such as License Raj, Land Permissions, Foreign Investment Proposals, and Environmental Clearances. It was organized by The Department for promotion of industry and internal trade (DPI&IT).
- 10,000 crore startup funding pool.
- Reduction in patent registration fees.
- Improved Bankruptcy Code, to ensure a 90-day exit window.
- Freedom from inspections for first 3 years of operation.
- Freedom from Capital Gain Tax for first 3 years of operation.
- Freedom from tax for first 3 years of operation.
- Self-certification compliance.
- Created an Innovation hub, under the Atal Innovation Mission.
- To target 5 lakh schools, and involve 10 lakh children in innovation-related programmes.
- New schemes to provide IPR protection to startup firms.
- Built Startup Oasis as Rajasthan Incubation Center.
Registration for Startup India
- A person must follow the below-mentioned steps that are important for the successful registration of their business under the Startup India scheme:
- A person should incorporate their business first either as a Private Limited Company or as a Limited Liability Partnership or as a Partnership Firm along with obtaining the certificate of Incorporation, PAN, and other required compliances.
- A person needs to log in to the official website of Startup India where he/she has to fill all the essential details of the business in the registration form and upload the required documents.
- A letter of recommendation, Incorporation/Registration Certificate, and a brief description of the business are some of the essential documents required for the registration purpose.
- Since the start-ups are exempted from income tax benefits, therefore, they must be recognized by the Department of Industrial Policy and Promotion (DIPP) before availing these benefits. Also, they should be certified by the Inter-Ministerial Board (IMB) to be eligible for IPR related benefits.
- After successful registration and verification of the documents, you will be immediately provided with a recognition number for your startup along with a certificate of recognition.
Simplification and Handholding
Compliance Regime based on Self-Certification: Startups shall be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and environment laws. In case of the labour laws, no inspections will be conducted for a period of 3 years. Startups may be inspected on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer. In case of environment laws, Startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases.
Startup India Hub: To create a single point of contact for the entire Startup ecosystem and enable knowledge exchange and access to funding.
Rolling-out of Mobile App and Portal: To serve as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders
Legal Support and Fast-tracking Patent Examination at Lower Costs: Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable. Rebate on filing of application: Startups shall be provided an 80% rebate in filing of patents vis-a-vis other companies. The scheme is being launched initially on a pilot basis for 1 year; based on the experience gained, further steps shall be taken.
Relaxed Norms of Public Procurement for Startups: In order to promote Startups, Government shall exempt Startups (in the manufacturing sector) from the criteria of “prior experience/ turnover” without any relaxation in quality standards or technical parameters. The Startups will also have to demonstrate requisite capability to execute the project as per the requirements and should have their own manufacturing facility in India.
Faster Exit for Startups: Startups may be wound up within a period of 90 days from making of an application for winding up on a fast track basis, as per the recently tabled Insolvency and Bankruptcy Bill 2015, which has provisions for voluntary closure of businesses. This process will respect the concept of limited liability.
Funding Support and Incentives
- Providing Funding Support through a Fund of Funds with a Corpus of INR 10,000 crore – In order to provide funding support to Startups, Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year) . The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.
- Credit Guarantee Fund for Startups – Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years.
- Tax Exemption on Capital Gains – With this objective, exemption shall 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.
- Tax Exemption to Startups for 3 years – The profits of Startup initiatives are exempted from income-tax for a period of 3 years. The exemption shall be available subject to non-distribution of dividend by the Startup.
- Tax Exemption on Investments above Fair Market Value – Under The Income Tax Act, 1961, where a Startup (company) receives any consideration for issue of shares which exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of recipient as Income from Other Sources. Investment by venture capital funds in Startups is exempted from operations of this provision. The same shall be extended to investment made by incubators in the Startups.
Concerns with Start-up India
- Role of Government as investor: Start-up India initiative proposes a fund of funds’ of Rs. 10,000 crores (about $1.5 billion) corpus deployed in tranches of Rs. 2,500 crores over a period of four years. The government’s ambitions of turning limited partner to venture capital funds has drawn sharp criticism from several quarters. The primary gripe is whether it is prudent on the part of the government to invest taxpayers’ money in venture capital funds, which will in turn invest in enterprises that carry a high risk of failure. However, it is important to encourage the growth of a domestic venture capital industry that is not overwhelmingly dependent on foreign capital. There are two key reasons. One, firms backed by foreign capital tend to gravitate towards start-ups that replicate business models that have been successful in the US, or in other developing markets. The fund of funds aims to fix that imbalance by specifically investing in funds that will, in turn, invest in sectors such as health, education, manufacturing and agriculture. Two, the dependence on foreign capital makes firms here vulnerable to the ups and downs of those markets.
- Start-ups have been exempted from paying taxes for the first three years. But considering most startups don’t make money so early, such an exemption would have little impact.
- Defining innovation: The Action Plan requires an enterprise or partnership to be innovative by developing and commercialising a new product or service; a step to promote truly innovative ideas. But it institutes an inter-ministerial body led by DIPP to examine whether an enterprise is ‘innovative’. It also requires a ‘recommendation’ from an incubator setup by the government or be supported by an incubator in a post-graduate institution recognised by the government; this need for validation and recommendation goes against the very steps the Action Plan takes to reduce government involvement. This additional layer of bureaucracy could slow down the starting up process and needs to go. Also, the government’s definition of a start-up has been questioned. It seems to include only those aspirants who can make clever use of technology. If somebody wants to develop a new app-based business, that could qualify as a start-up. But if a young person in some remote corner of the country wants to start a new business, which is traditional in nature, it may not necessarily qualify as a start-up.
Startup India Benefits
After the launch of the Startup India scheme, a new program was launched by the government named the I-MADE program which focused on helping the Indian entrepreneurs in building 1 million mobile app start-ups. The government of India had also launched the Pradhan Mantri Mudra Yojana which aimed to provide financial supports to the entrepreneurs from low socioeconomic backgrounds through low-interest rate loans. Some of the key benefits of Startup India are as follows:
- To reduce the patent registration fees.
- Improvement of the Bankruptcy Code ensuring a 90-day exit window.
- To provide freedom from mystifying inspections and capital gain tax for the first 3 years of operation.
- To create an innovation hub under the Atal Innovation Mission.
- Targeting 5 lakh schools along with the involvement of 10 lakh children in innovation-related programmes.
- To develop new schemes that will provide IPR protection to startup firms.
- To encourage entrepreneurship throughout the country.
- To promote India as a start-up hub across the world.