Startup India is a seismic initiative of the Government of India, intended to build a sturdy ecosystem that encourages new ideas and leads to economic growth, and thereby creating large-scale employment opportunities in the country.
India has become the world’s fast growing economy. With young Indians today have the zeal to work on new and innovative ideas; India is all set to surpass all other nations on the world stage in the near future.
The Startup India movement is on the threshold of a revolution. However, many Startups do not see the light of the day due to limited guidance and access. The most heartening aspect is that the government has become steadfast supporter of start-up and wants to help them achieve success. In order to create conducive and enabling environment for these startups, the Government of India has recently laid down the Action Plan addressing all aspects of the startup ecosystem. The key highlights of an action plan can be summed up as under:
Definition of Startup
The first move rightly taken by the government to make ‘starting a business’ simpler for Startups is defining the word “startup”. Now, Startup is to be viewed differently from the existing businesses. According to the government notification, an entity will be identified as startup if it fulfils following essentials –
- Up to five years from the date of its incorporation/registration, if it is incorporated or registered in India;
- In any preceding financial year its annual turnover has not exceeded Rs. 25 crore;
- And it is devoted towards innovation, deployment, development, or commercialization of new products, processes or services driven by technology or intellectual property.
- Painless Regulatory Measures: Generally, regulatory formalities requiring conformity with various labour and environment laws are complex in nature and time-consuming. In order to boost Startups, the government has simplified the regulatory regime, and thereby allowing Startups to self-certify compliance of labour and environment laws (via Startup mobile app).
- Conducive Business Environment: Government plans to set up ‘Startup India Hub.’ Ease of doing business is expected to be enhanced by the creation of such hubs. It will enable knowledge exchange and access to funding with the help of various stakeholders such as Central and State Governments, consultant, legal partners, universities, R&D institutions, Indian and foreign VCs, angel networks, banks and incubators.
- Support through Fund of Funds (FOF): Access to finance is one of the key challenges faced by Startups. Government plans to indirectly invest or fund startups by setting up Fund of Funds (FOF) with a total corpus of INR 10,000 crore spread over a period of 4 years.
- Support through Credit Guarantee Fund: The government is also going to set-up two credit guarantee fund for startup in order to facilitate loans to micro and small entrepreneurs through MUDRA (Micro Units Development Refinance Agency) and the Stand Up India scheme. The corpus of credit guarantee fund for MUDRA will be Rs 3,000 crore and for Stand Up India Rs 5,000 crore
- Startup Fests: An essential component for development and growth of Startups is unhindered communication and collaboration within the Startup community. To strengthen the Startup ecosystem, the government plans to introduce Startup fests at national level as well as international stages.
- Atal Innovation Mission: The government has also launched Atal Innovation Mission (AIM) which aims at boosting innovation and entrepreneurship in India. Besides this, AIM will create a platform for promotion of world-class Start-up businesses, Grand Challenges, Innovation Hubs, and other self-employment activities, especially in technology-driven areas.
- Establishing Research Parks: It has also been proposed to set-up seven new research parks with an investment of Rs.100 crore each, so that a collaborative environment between industry and academia could be created. These parks shall facilitate companies with R&D activities, and thereby setting-up a base and influencing the expertise of research institutions.
- Educational Institution Involvement: In order to encourage research and innovation among young students, the government will set up innovation centers at various IIT’s, NIT’s and others educational institution.
- Private Sector Expertise for Incubator Setup: By this, the government intends to harness expertise of private sector and thus, it has created a policy and framework to set-up incubators in public-private partnership. The aim under this initiatives to manage Govt. sponsored/funded incubators effectively, efficiently and professionally.
- Annual Incubator Grand Challenge: In order to identify leading Incubators in India, the government plans to launch an annual Incubator Grand Challenge.
In order to promote investments into Startups, facilitate unhindered growth of Startups, and to encourage seed-capital investment in Startups, the government has provided the following tax benefits to promising entrepreneur –
- Tax exemptions on capital gains by investing in start-ups directly or indirectly.
- 100% Tax exemptions on profits generated by startups for a period of 3 out of their 5 years.
- Tax exemptions on investment above Fair Market Value.
- Portal for Interaction: A Mobile app has been launched that will serve as the platform for startups for interacting with the Government as well as Regulatory Institutions. It will help startups quickly get off the ground. Through the app one can track the status of Registration, download registration certificate, file compliances, obtain clearances and approvals among other things.
- Legal Assistance and Fast-Track Startup Patent Applications: Government has come up with fast-track examination of patent applications and rebate in fees in order to promote awareness and adoption of IPRs by Startups and assist them in protecting and commercializing the IPRs.
- Relaxed Norms of Public Procurement: In order to bring Startups (in the manufacturing sector) and the experienced entrepreneurs/companies in public procurement on equal footing and norms for startups has been relaxed by the government when they are applying for tenders floated by PSU.
- Easy Winding-up Operation: In the event of business failure, government intends to make it easier for startups to exit so that entrepreneurs can experiment with new ideas without fear of cumbersome ‘exit process’.
- One-Day Incorporation: Bringing in “One- day incorporation” process via a mobile app is an important initiative taken by the government and would be a big boost for promising entrepreneurs.
India’s greatest tax reform – GST
Recently, the long-due crucial legislation Goods and Services Tax (GST) Constitution bill (122nd Amendment) has been passed by Parliament. It will benefit the consumer and small business, as GST will enhance transparency and mitigate the cascading or double taxation effect. GST is deemed to benefit all businesses in India, but startups can cheer for the following reasons:
- Replacing the current VAT registration process, GST will make it more uniform and centralized. Hence, starting a new business in a state and expansion of business in other states will be easier.
- GST will provide higher exemption to newly established businesses. According to the current structure, if turnover of a business is more than Rs. 5 lakh, it is required to get VAT registration and pay VAT accordingly. But, under GST, this limit is higher, i.e. upto Rs. 10 lakh. Moreover, a business with turnover between Rs. 10 and 50 lakh will be taxed at a lower rate.
- Simplified process of tax payment: Presently, a startup spends a lot of time and energy to deal with the various taxes at different points. GST will integrate all indirect taxes (levied by Center and States), and thereby making the process of paying tax simpler for them.
- GST will not make distinction between sales and services. The tax calculation will be done on total. For example, according to the current structure, restaurants are required to calculate the VAT and service tax on both items (sales and services) separately as they fall under both sales and service taxation. GST will replace this complex process of calculations and bring in a uniform process, under which there will be no distinction between ‘sales of goods’ and ‘rendering of services’ with regard to levying of tax.
- GST will bring down logistics cost of companies, such as payment of small border etc. and facilitate undisrupted movement of goods across states.
The initiatives taken by the government are commendable as it will provide a perfect ecosystem to budding entrepreneurs to blossom. With such support from the government, our startup ecosystem will definitely be the best in the world. We just need to wait and watch whether these initiatives will get implemented efficiently and what would be the outcome.