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.
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 a steadfast supporter of start-up and wants to help them achieve success. To create a 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’ more straightforward 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 a startup if it fulfils following essentials –
- Up to seven 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 crores;
- And it is devoted towards innovation, deployment, development, or commercialisation of new products, processes or services driven by technology or intellectual property.
General Initiatives Under Startup India
- Painless Regulatory Measures: Generally, regulatory formalities requiring conformity with various labour and environment laws are complicated in nature and time-consuming. 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 critical challenges faced by Startups. Government plans to invest indirectly, or fund startups by setting up Fund of Funds (FOF) with a total corpus of INR 10,000 crore spread over 4 years.
- Support through Credit Guarantee Fund: The government is also going to set-up two credit guarantee fund for a startup to facilitate loans to micro and small entrepreneurs through MUDRA (Micro Units Development Refinance Agency) and the Stand Up India scheme. The corpus of the 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 the 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 the national level as well as international stages.
- Atal Innovation Mission: The government has also launched the Atal Innovation Mission (AIM), which aims at boosting innovation and entrepreneurship in India. Besides this, AIM will create a platform for the 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: To encourage research and innovation among young students, the government will set up innovation centres at various IIT’s, NIT’s and other educational institution.
- Private Sector Expertise for Incubator Setup: By this, the government intends to harness the expertise of the private sector and thus, it has created a policy and framework to set-up incubators in a public-private partnership. The aim under these initiatives to manage Govt. sponsored/funded incubators effectively, efficiently and professionally.
- Annual Incubator Grand Challenge: To identify leading Incubators in India, the government plans to launch an yearly Incubator Grand Challenge.
Tax Benefits Under Startup India
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 under Startup India–
- 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 five years.
- Tax exemptions on investment above Fair Market Value.
Regulatory Measures Under Startup India
- 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 to promote awareness and adoption of IPRs by Startups and assist them in protecting and commercialising the IPRs.
- Relaxed Norms of Public Procurement: 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, the 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.
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GST enhances transparency and mitigates the cascading or double taxation effect. GST benefits all businesses in India, but startups can cheer for the following reasons:
- Replacing the current VAT registration process, GST makes it more uniform and centralised. Hence, starting a new business in a state and expansion of business in other states is easier.
- GST provides a higher exemption to newly established businesses. According to the current structure under GST, if the annual turnover of a business is more than up to Rs. 20 lakh, only then the company is required to get a GST Registration to sell goods or services in a state locally.
- Simplified process of tax payment: GST integrates all indirect taxes (levied by Center and States), and thereby makes the process of paying tax simpler for them.
- GST does not make a distinction between sales and services. The tax calculation under GST is done on the total. Under GST, there is no distinction between ‘sales of goods’ and ‘rendering of services’ about levying of the tax.
- GST brings down the logistics cost of companies. These payments include payment of small border etc. and facilitate the undisrupted movement of goods across states.
The initiatives under Startup India taken by the government are commendable as they provide a perfect ecosystem to budding entrepreneurs to blossom. With such support from the government, our startup ecosystem will be the best in the world. We need to wait and watch whether these initiatives will get implemented efficiently and what would be the outcome.