Startup India and Government Initiatives
Contents
In India, a wide array of incentives and schemes have been brought in to promote the growth of up and coming businesses also known as startups. The government is very passionate about facilitating the ease of doing business in India. Some of these incentives include one-day company incorporation. In addition, India encourages developing an ecosystem of entrepreneurs, investors, along with incubation centers linking up with research institutes as well as mentorship programs; tax and fiscal benefits; and patent registration rights reform. These create a system that helps startups help each other to grow and promote the make in India initiative. Along with this, the government encourages investment in startups with the removal of tax on angel investments and cutting down taxes on Foreign Venture Capital in Indian Startups. One of these initiatives called startup India which aims to help promote the startup culture in India.
These initiatives, including startup India, have been pivotal in promoting business acumen amongst the aspiring entrepreneurs in the country. Many startups have sprung up all across the country in the past 5 years in a wide variety of sectors of the economy such as IT, AI, Financial Sectors, Healthcare, Biotech, Agriculture. These schemes and promotions have resulted in India becoming the world’s 3rd largest technology hub. With 1000’s of company incorporations happening in the year 2018 alone.
In this piece, we will take a brief look at the startup India program. We will also look at how it helps the startups achieve their potential and beyond. In addition to this, we will also see some benefits of this program.
Definition of a Startup
In legal terms, the term startup applies to those companies which have been incorporated within the past 7 years. For biotech companies, the startup label can be attached to a firm till within 10 years.
The Department of Industrial Policy and Promotion has also laid out some criteria which need to be met by a company to be termed as a startup.
- The organization’s turnover does not exceed ₹ 25 Crores in any of the preceding financial years.
- The organization is headquartered in India
- The organization has been recognized to be working towards innovation, development, deployment, and commercialization of products/ delivery of services powered by technology or intellectual property.
However,
If a company crosses 7 years from the date of incorporation or achieves a turnover of more than ₹ 25 crores in a financial year, it will no longer be classified as a startup.
These norms and definitions are not set in stone, as they are prone to change by the directives from the concerned departments and the government. These definitions are up to date as per the notification issued on April 11, 2018.
Startup India Action Plan
The Modi government emphasizes the achievement of economic goals as one of the core focuses of the administration. The governance for the betterment aims to promote job creation, foreign investment, skill development, and entrepreneurship. In order to culminate all these objectives under one umbrella policy framework for the entire nation, the Startup India Action Plan was launched.
Under the provisions of this policy, startups are entitled to a lot of benefits some of these being regulatory and tax benefits, capital gains exception, in addition to government help for startup funding. In addition to taxation benefits, startups will also enjoy the assistance of a self-certification compliance system with respect to labor and environmental laws. this means that the startups will be exempt from any inspections of the place of business from up to 3-5 years.
Some other key benefits that startups in India will be entitled to include 80% reduction patent registration fees as well as a 50% reduction in the trademark filing. Startups will also benefit from free of cost legal assistance in conjunction with simplified entry and exit norms and protection of Intellectual Property Rights (IPR).
Legal Requirements for Establishing a Startup
For any organization, entity, business to be termed as a startup they should come under the jurisdiction of the following rules of Company Registration:
- Registration under the Companies Act, 2013
- Have registration under the Indian Partnership Act, 1932
- Limited Liability Partnership Act, 2002, for LLP registration
This also implies that firms under the Sole Proprietorship Registration are not covered by the provisions of this scheme.
Startup Compliance India
The norms for compliance for startups in India have been simplified in order to facilitate businesses to focus on their primary and core operations. The startups who fall under the category of the 36 white category industries will not require an environmental clearance under the following environmental laws:
- Water (Prevention and Control of Pollution) Act, 1974
- The Water (Prevention and Control of Pollution ) Cess (Amendment) Act, 2003
- The Air (Prevention and Control of Pollution) Act, 1981
The Ministry of Skill Development and Entrepreneurship (MSDE) issued an advisory to the various states. This advisory basically outlines the guidelines for a self-certification of the compliances for a time-period of one-year with the Apprenticeship Rules, 1992 and Apprenticeship Act, 1961. The advisory issued by the federal labor ministry on December 1, 2016, startups may self-certify compliances under the six labor laws. The tenure for the self-certification has been extended to 5 years.
Benefits of Startup India
Incentivized Schemes and initiatives from the Government of India in conjunction with the Department of Industrial Policy and Promotion have yielded fantastic results for the business sector of India. With over 19,000 startups operational across the country with 8 of those valued at $ 1million and more (Unicorn Club). The Startup India initiative was put in place to ensure that the increasing number of startups in the country have the right resources to grow. New startups registering themselves right now or in their early stags can really benefit from these schemes. Here are some of the benefits of the Startup India initiative.
Financial Benefits
As mentioned before, startups will tend to gain an 80% rebate on the government fees of patent costs. The government will also pay the fees of the facilitator and help in obtaining the patent in a faster more streamlined fashion. Basically, the processing of the Intellectual Property Rights (IPR) will be easier and simpler for startups.
Registration Benefits
On the 1st of April 2016, the government launched a mobile application which opened up a portal allowing the companies to register themselves within a day. Registration based queries have been streamlined via a single point of contact at the startup-hub India. In addition to this, there is a single clearance window for all types of clearances, approvals, and registrations, which makes the procedure easier for all.
Income Tax Benefits
Under the provisions of startup India, up and coming businesses are eligible for exemption from Income tax as a whole for the first three years. However, in order to obtain the income tax exemption, a startup has to obtain a certificate from an Inter-Ministerial Board setup for the same purpose. If the money is invested in a fund of funds, the startups can also avail the tax benefit on capital gains.
Special Benefits
- Manufacturing sector startups are exempted from the criteria of ‘prior experience’ or turnover. There is, however, no relaxation in the quality standards or the technical parameters with regards to public procurement.
- National Credit Guarantee Trust Company or SIDBI ensures guaranteed funds for over 4 years
- Labor Laws inspections will not be held in the first three years of incorporation
- Environment law compliances are only mandatory after self-certification
- Winding up of the company can be done in just under 90 days under Insolvency and Bankruptcy Code
Well, Startup India has proven to be a miracle worker for enforcing the flourishing of the startup culture as well as empowering these businesses with the proper tools and facilities to help them leapfrog from the startup phase into a successful business stage. You can go ahead and visit the Startup India Website – https://www.startupindia.gov.in/ to help your venture on the path to success.
