Published on Oct 24, 2018
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.
Several programs have been undertaken since the launch of the initiative on 16th of January, 2016 by Hon’ble Prime Minister, to contribute to his vision of transforming India into a country of job creators instead of job seekers. These programs have catalyzed the startup culture, with startups getting recognized through the Startup India initiative and many entrepreneurs availing the benefits of starting their own business in India.
The 19-Point Startup India Action Plan envisages several incubation centres, easier patent filing, tax exemptions, ease of setting-up of business, a INR 10,000 Crore corpus fund, and a faster exit mechanism, among others.
In order to meet the objectives of the initiative, Government of India is announcing this Action Plan that addresses all aspects of the Startup ecosystem.
To create a single point of contact for the entire Startup ecosystem and enable knowledge exchange and access to funding.
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 reac h 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.
The “Startup India Hub” will be a key stakeholder in this vibrant ecosystem and will:
• Work in a hub and spoke model and collaborate with Central & State governments, Indian and foreign VCs, angel networks, banks, incubators, legal partners, consultants, universities and R&D institutions
• Assist Startups through their lifecycle with specific focus on important aspects like obtaining financing, feasibility testing, business structuring advisory, enhancement of marketing skills, technology commercialization and management evaluation
• Organize mentorship programs in collaboration with government organizations, incubation centers, educational institutions and private organizations who aspire to foster innovation.
To all young Indians who have the courage to enter an environment of risk, the Startup India Hub will be their friend, mentor and guide to hold their hand and walk with them through this journey.
There are the major benefits of the Startups India -
1. Tax exemption for start-ups for three years.
2. Rs. 10,000 crore corpus fund to support start-ups.
3. Capital gains tax to be exempted for venture capital investments.
4. 80% reduction in patent registration fee.
5. Govt. to ensure 90-day window for start-ups to close businesses.
6. Self-certification compliance for start-ups across India.
7. No government inspection for three years for newly-formed start-ups.
8. New scheme to provide IPR protection to start-ups and new firms.
9. Innovation programme to start 5 lakh schools to target 10 lakh children.
10. Government is all set to launch an app to create a platform for interaction with start-ups.
We have to required following things -
a) a Legal Entity
b) a Recommendation Letter From Incubator/VC/Angel Investor or Patent.
c) a Certification for the Innovative idea of the business by the govt recognized incubator. they have policy for the fee i.e is nearby 5000 INR Min.
d) Turnover have less than 5 cr.
e) For the Tax Exemption required evaluation from the Inter ministerial board separate.
Availing tax benefits under the Startup India needs lots of criteria to be fulfilled. All startups cannot avail the tax benefit. Here is how one may enjoy the tax benefits.
i) The business for which the rebate is applied must be an innovative one. Startup India supports only those who have a fresh idea in manufacturing or service which is profitable for the society.
ii) The product of one's business must add value to its customer or industry. Value adding is a must-have feature to qualify for tax rebate.
iii) One's product must have the quality of solving at least one problem of the society. If your product comes in a luxurious item, then the tax concession is not applicable to your business.
iv) The private limited company (including One person Company) or Limited Liability Partnership (LLP) which is applying for tax benefits must be registered on or after 1st April, 2016.
v) You have to fill up the form carefully while registering your business for startup India scheme. While filing for startup India registration, one must select the option of “registration with tax benefit” to avail tax benefits.
vi) The business model which you are going to execute must be a working business model or else the incubators may reject your application stating the business model will not work in real time.
vii) One has to obtain a recommendation letter in order to avail the tax benefit. The recommendation letter should be obtained from any of the followings.
• Incubators established in postgraduate college
• Incubator which is funded from Central or state government
• Incubator recognized by the Government of India.
• Letter of funding of not less than 20 percent in equity
• Letter of funding from Central or state government
• Patent filed and published in the journal
The Startup India scheme is very helpful for the young entrepreneurs with a product which is helpful for the society. A tax holiday for three consecutive years will make them invest that amount in their business to increase the revenue. Once the business is established than paying 30% of tax will not be a big deal for any entrepreneur.
With this Action Plan the Government hopes to accelerate spreading of the Startup movement:
• From digital/ technology sector to a wide array of sectors including agriculture, manufacturing, social sector, healthcare, education, etc.; and
• From existing tier 1 cities to tier 2 and tier 3 citites including semi-urban and rural areas.
The Action Plan is divided across the following areas:
• Simplification and Handholding
• Funding Support and Incentives
• Industry-Academia Partnership and Incubation
Given the innovative nature of Startups, a significant percentage fail to succeed. In the event of a business failure, it is critical to reallocate capital and resources to more productive avenues and accordingly a swift and simple process has been proposed for Startups to wind-up operations. This will promote entrepreneurs to experiment with new and innovative ideas, without having the fear of facing a complex and long-drawn exit process where their capital remain interminably stuck.
The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 has provisions 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 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 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.
In order to overcome traditional Indian stigma associated with failure of Startup enterprises in general and to encourage experimentation among Startup entrepreneurs through disruptive business models, credit guarantee comfort would help flow of Venture Debt from the formal Banking System. Debt funding to Startups is also perceived as high risk area and to encourage Banks and other Lenders to provide Venture Debts to 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.
Due to their high risk nature, Startups are not able to attract investment in their initial stge. It is therefore important that suitable incentives are provided to investors for investing in the Startup ecosystem. 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. This will augment the funds available to various VCs/AIFs for investment in Startups. In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups. Currently, such an entity needs to purchase “new assests” with the capital gain received to avail such an exemption. Investment in ‘computer or computer software’ (as used in core business activity) shall also be considered as purchase of ‘new assets’ in order to promote technology driven Startups.
During the initial years, budding entrepreneurs struggle to evaluate the feasibility of their business idea. Significant capital investment is made in embracing ever-changing technology, fighting rising competition and navigating through the unique challenges arising from their venture. Also, there are limited alternative sources of finance available to the small and growing entrepreneurs, leading to constrained cash funds. With a view to stimulate the development of Startups in India and provide them a competitive platform, it is imperative that the profits of Startup initiatives are exempted from income-tax for a period of 3 years. This fiscal exemption shall facilitate growth of business and meet the working capital requirements during the initial years of operations. The exemption shall be available subject to non-distribution of dividend by the Startup.
Mumbai-based real estate developer Ajmera Group will invest up to $10 million in technology-based startups, with a focus on fintech and software-as-a-service (SaaS), as part of its expansion plan. It has already picked up stakes in three startups and plans to invest in another seven by the end of June 2019, said a top executive.
“We are primarily in real estate, but with opportunities coming up in the startup space and the vision of the government, I feel it is a great business opportunity. The future definitely looks good. It gives us an opportunity to enter into a line of business which will grow organically,” said Dhaval Ajmera, director at Ajmera Group.
According to Ajmera, Ajmera Group will also consider acquisitions of such companies. Two years ago, it had backed BookMeIn, an online marketplace for services, besides investing in The Sports Gurukul, which runs sports programmes in schools and colleges, and ModuleX, a modular kitchen development startup.
Ajmera, founded 50 years ago, has diversified into various sectors over the years, including power, steel and education. In September, Ajmera entered Bahrain and London with their first international project, according to a Business Standard report. The company also plans to develop residential projects in Rajkot, Bengaluru and Mumbai.
In September 2017, the Lodha Group had tied up with Mumbai-based start-up incubator Zone Start-up India (ZSI) and had launched Palava Accelerator. Lodha had initially invested about $7.8 million in real estate and smart cities.
The Start-up India initiative of the Government of India envisages to build a robust Start-up ecosystem in the country for nurturing innovation and providing opportunities to budding entrepreneurs. The active support of State/UT Governments is crucial for achieving the overall objectives of the program. An Action Plan with 19 action points for Start-up India initiative was unveiled by the Hon’ble Prime Minister on January 16, 2016. This Action Plan laid down a roadmap for the creation of a conducive ecosystem for Start-ups in India. Subsequently, many activities have been undertaken to encourage Startups.
In order to achieve the vision of building a strong ecosystem in India, it is imperative that collaborative and concerted efforts are undertaken by Centre and States/UTs together for effectively nurturing and supporting Start-ups for their success. With this objective, a set of recommendations has been drafted on which State/UT Government can act upon and implement to develop an enabling Start-up ecosystem.
The ‘State/UT Startup Ranking Framework’ is spread across 7 areas of interventions with a total of 38 action points and overall score of 100 marks. The framework also provides
the guidelines to support implementation of action points along with good practices against each action point. In order to evaluate States/UTs in a balanced and
transparent manner, the implementation of action points by the State/UT Government and feedback from Startup ecosystem components have been given due weightage.
Under the framework, out of 38 action points, 21 action points require submission of supporting document(s), 1 action point requires only stakeholder feedback and 16 action points require both the components (supporting document(s) and stakeholder feedback) for assessment of the State/UT Startup initiatives.
