India has seen unprecedented growth of startups in last couple of years. Modi Government has started the new campaign to boost the startups in India. It has devised action plan that addresses all aspect of startup ecosystem. The action plan gives details about definition of startup, its formation, keys challenges faced by startups, Exemptions, Taxation of startups, exit of startups.
Definition: A startup means an a Private limited company, Partnership firm or LLP incorporated or registered in India. It must be in existence for not more than 5 years, therefore if the entity is more than 5 years old then it will not be a startup. It must have turnover of not more than 25 crore in any of 5 preceding financial year.
A Venture will be considered as startup if It aims to develop & commercialize
1. A new product or service or process
2. significantly improved existing product or services that will create or add value for customers or workflow
3. It should be supported a recommendation (with regard to innovative nature of business), in a format specified by DIPP, 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), in a format specified by DIPP, 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 GoI 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.
Not eligible: The mere act of developing products or services or processes which do not have potential for commercialization; or undifferentiated products or services or processes; or products or services or processes with no or limited incremental value for customers or workflow would not be covered under this definition.
Registering Startups: Startups require registration with relevant regulatory authorities. Delays or lack of clarity in registration process may lead to delays in establishment and operations of Startups. To register Startup with relevant agencies of the Government, a Mobile app will be developed. It will be integrated with Ministry of corporate Affairs(MCA) & Register of Firms for faster exchange of information. It will also help startups in timely statutory compliance. The App shall provide a collaborative platform with a national network of stakeholders (including venture funds, incubators, academia, mentors etc.) of the Startup ecosystem to have discussions towards enhancing the ecosystem. It will also help startup in applying for various schemes. The Mobile App will be applicable from 01/04/2016.
Financial support: In order to support startups Government will set up fund of 2,500 crore rupees. The fund will provide financial support to startups. Startups can also get loans from National Credit Guarantee Trust company/SIDBI with corpus of 500 crore rupees.
Exemptions: Startups will be exempt from Tax for an initial period of 3 years. This is mainly to the fact that startup are usually business which are risky & innovative & need time to generate profits. The Exemption is provided only if the entity does not distribute Dividends in the 3 years.
Under section 56(2) (viib) tax will be applicable where any consideration for issue of shares which exceeds fair market value. Hence if any investor invests in startup & after that the startup issues shares then the same transaction will not attract any tax under above section.
Incubators: Incubators are institutions which help develop startups. They usually provide facility like physical infrastructure, mentorship support, access to networks, access to market etc. Government is planning establishing of 35 new incubators in existing institutions & 35 new private sector incubators. Government is also planning setting up 13 startup centres & 18 Technology Business incubators.
|Startup centres||Technology Business Incubators|
|1. RGIIM Shillong
2. NIT Goa
3. NIT Delhi
4. NIT Agartala
5. MNIT Allahabad
6. NIT Silchar
7. VNIT Nagpur
8. IIT Bhubaneswar
9. IIITDM Kancheepuram
10. NIT Patna
11. PDPM-IIITDM Jabalpur
12. NIT Arunachal Pradesh
13. ABVIIITM Gwalior
|1. MANIT Bhopal
2. IISER Bhopal
3. NIT Warangal
4. NIT Rourkela
5. IIM Rohtak
7. NIT Jalandhar
8. IIT Mandi
9. NIT Tiruchirappalli
10. IIM Udaipur
11. IISER Mohali
12. IIT Patna
13. NIT Calicut
14. IIT Roorkee
17. IISER Thiruvananthapuram
18. IIM Raipur
Easy & Faster Exit of Startup: Due to innovative nature of startups, a significant percentage fail to succeed. Hence to fast track startups government has introduced the Insolvency & Bankrupcy bill 2015 which provides voluntary closure of business. A startup may be wound up within 90 days