Startup India- A Government Initiative
– Prasun Sarkar
In recent years, there has been a shift in business models. The most prevalent type of business these days is a startup. A startup is a small business that brings about a new product or service in the market. It initially starts with funding from an outsider that is either an angel investor or a venture capitalist. However, the government has taken a special interest in these types of business setups. The only reason being, startups have a positive impact on the economy of the country. The most important among them being the creation of jobs. India having a population of almost 1.3 billion, creating job opportunities for everyone is too difficult, especially when most of the population are of the age group 18-30. Hence the government came up with the scheme, Startup India. The main objective of this scheme apart from promoting startups is to encourage young entrepreneurs to come forward and pitch their ideas and help create jobs rather than looking for one. This Startup India scheme was launched by the Prime Minister of the country on 16th January 2016 with three main goals, first to make the whole process simpler and provide a helping hand to new entrepreneurs, second to help them with funding and provide incentives to arouse their interest and third to provide industry-academia partnership and incubators. The government in this initiative has provided a total fund of 2500 crores along with a credit guarantee of 500 crores. These programs are managed by the Department for Industrial Policy and Promotion.
The government has made a plan of action as to how it would proceed to encourage young entrepreneurs. The government created a corpus of 1000 crores to support entrepreneurs. Moreover, the government will not charge any tax on profit for the first three years when the startup starts earning profit. A scheme for credit guarantee has also been created. Further, steps have been taken for an easier and faster exit policy in case the startup fails. No tax will be charged on capital gains if money is invested in other startups. Initiative has also been taken to encourage women entrepreneurs. The government has also been supporting biotechnology startups along with all other regular startups. They have initiated programs to encourage students to come up with innovative ideas among students all over the country. Along with these steps, the government has also made research parks and innovation centers at various National Institutes for research and development.
Benefits of Startup India Scheme
A startup in order to avail the benefits under this scheme has to be recognized and registered under the Department for Industrial Policy and Promotion. The various benefits that are provided are as follows:
- ● Self Certification
Startups will be allowed to self certify themselves for six labor laws and three environmental laws. Startups will not be checked for labor law violations until and unless a credible and written complaint has been made to the required authority. Self-certifications for environmental law compliances will be only allowed for white category startups.
- ● Tax Benefits
The startups which are eligible for exemption have to be recognized with DPIIT. They will be exempted from paying tax for three consecutive years since it’s incorporation. There are certain eligibility criteria that have to be met to get this tax benefit. Firstly, the entity has to be recognized by DPIIT. Secondly, only private limited companies and limited liability partnerships are eligible for tax exemption under 80IAC. Lastly, the startup had to be incorporated on or after April, 1st 2016.
Registration under this scheme is mandatory and has to be done through the Startup India Portal,
Then the startup has to apply for DPIIT recognition and then access the 80IAC application filling the necessary details and uploading the required documents. The documents that have to be provided include Memorandum of Association or MOA of the startup, Board Resolution, Annual Accounts of the startup for the last three financial years, and income tax returns for the last three financial years.
Section 56 Exemption
This exemption is provided to listed companies that have a turnover of 250 crores or a net worth of 100 crores who invests in eligible startups. The exemption is also given to accredited investors, non-residents and alternative investment funds (category I) who invest in eligible startups. Consideration of shares received by eligible startups shall be exempted up to an aggregate limit of 25 Crore. The eligibility for getting an exemption under this section include, that the company investing in the startup has to be a private limited company, these companies have to be recognized by DPIIT, and they should not invest in a specific class of asset.
Registration has to be done for availing benefits under this scheme as well. The registration application has to be completed on the Startup India Portal. The company has to apply for DPIIT recognition and then fill up the section 56 exemption application form on the portal.
- ● Facilitation for easy winding up
This scheme provides an easy exit process, for entrepreneurs. In case a startup fails the business does not have to go through a complex resolution process. A startup has a simpler debt structure compared to other companies. A startup can be wound in only 90 days. This does not block the funds of the entrepreneurs and allows them to reallocate funds into some other business idea. An insolvency professional can be appointed to supervise the liquidation of assets and pay off the creditors within six months of its appointment.
- ● Intellectual Property Applications
This scheme makes it easier to apply for intellectual property rights. Under this process, both time and cost is reduced to a minimum to make it financially viable for the entrepreneurs. The various benefits under this IP applications include Fast-tracking of Startup Patent Applications, here the applications will be fast-tracked so that the value of the innovation can be realized as early as possible. There is also a Panel of facilitators who assist in the filing of IP applications and helps entrepreneurs in the filing process. The government has also taken the initiative to bear facilitation 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. Startups shall also be provided with an 80% rebate in filing of patents vis-a-vis other companies.
- ● Relaxation with regards to Public Procurement Norms
A startup is given exemptions with regard to earnest money deposit, prior turnover, and experience requirements in case of government tenders. Apart from this, a startup can also be listed on the government’s largest e-Procurement portal as a seller which is the Government Marketplace or GeM.
Steps to register for the Startup India Scheme
- ● Step 1
Incorporation of business
One has to incorporate the business either as a partnership firm or limited liability partnership or as a private limited company. All the normal procedures for registering any other business have to be followed like obtaining a certificate of incorporation or partnership registration, and other compliances.
- ● Step 2
Registering with Startup India
In this process all one has to do is, they have to log into the web page of Startup India,
and one has to register itself as a startup. The outlined process is very simple and compact. After logging into the website, details of the startup have to be filled and certain documents are needed to be uploaded.
- ● Step 3
Uploading of documents
The first document that is needed is a letter of recommendation or support. This recommendation or support has to be submitted along with the registration form. A recommendation can be obtained from an incubator established in a college/university. A recommendation or support can also be taken from an incubator which is recognized by the government of India. A letter of funding of not less than twenty percent in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network, duly registered with SEBI that endorses innovative nature of the business or a letter of funding either by the government of India or any state government as a part of any scheme will also be held valid. Secondly, a certificate of incorporation of the company or LLP also has to be uploaded. Along with these, a brief description of the business is also necessary.
- ● Step 4
Application for tax benefits
Startups recognized by DPIIT or the Government of India can only apply for this benefit. The startups must have a certification from the Inter-Ministerial Board to avail of this benefit. However, if either recognized by the Government of India or DPIIT then separate certification is not needed from the Inter-Ministerial Board.
- ● Step 5
The startup needs to certify by themselves that they fulfill the following conditions.
- a. They are a Private Limited Company or a Partnership firm or a Limited Liability Partnership.
- b. Their business is incorporated/registered in India, not before 5 years.
- c. Their turnover is less than 25 crores.
- d. The business must be working towards innovating something new or significantly improving the existing used technology.
- e. The business must not be as a result of splitting up or reconstruction of an existing business.
- ● Step 6
Issuing of Registration Number
On uploading the necessary documents and completing the required formalities, a Certificate of Recognition will be issued after careful verification of the documents. However, if it is found that the documents uploaded are wrong or the documents are forged then a fine of 50% of the paid capital will be charged.
The steps taken by the government to indulge startups in the Indian economy proves its importance. Since the commencement of this scheme 14,036 startups have been recognized according to the definition of the Department of Industrial Policy and Promotion (DPIIT); 660 startups have received business support; and 132 have been funded. Startups have a great impact on the economy of the country. They solve the problem of unemployment. It provides jobs i.e rather it plays the role of job creation. However, there are still certain milestones that need to be achieved. Despite such initiatives, there are certain startups that never actually make it to the market. More and more investments are required for research and development in this field. With the government’s aid, India has the potential of taking the country’s startup ecosystem to heights which no country has ever reached or will be able to reach in a span of few years.