This ambitious scheme was launched on 16th January, 2016 to boost up the Startup ecosystem in India.This article explains who are eligible to get the benefits and what exactly are the benefits.
The Action Plan was divided into 3 categories.
Out of the above three categories the first two deals with the real time benefits that the eligible Start-up will get.
The third category mainly deals with the support and development facilities the Govt wishes to set up in order to boost Startup ecosystem in India.
Once you fulfil all criteria above you will have to get approval from DIPP (Department of Industrial Policy and Promotion)
Who are not eligible?
An existing company can also register itself as a Startup from the Startup India portal or mobile APP.
The process of registration in such cases shall be real time and the certificate of recognition would be issued immediately upon successful submission of the application.
Now, what are the benefits?
A. Simplification and Handholdin
1.Compliance regime based on Self Certification
Startups shall be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and environment laws (refer below). In case of the labour laws, no inspections will be conducted for a period of 3 years. Startups may be inspected on receipt of credible and verifiable complaint of violation, filed in writing and approved by at least one level senior to the inspecting officer.
In case of environment laws, Startups which fall under the ‘white category’ (as defined by the Central Pollution Control Board (CPCB)) would be able to self-certify compliance and only random checks would be carried out in such cases.
2.Startup India Hub
3.Mobile App and Portal
A mobile app is available from 1st April, 2016which will enable the start-ups to register documents, track status of registration and fulfil other compliances. This way there will be more clarity regarding the formalities to be done.
4.Patents at Lower Cost
The scheme for Startup Intellectual Property Protection (SIPP) shall facilitate filing of Patents, Trademarks and Designs by innovative Startups. There will be fast track application of patents as a result of this.
5.Relaxed norms of Public Procurement
Startups are mostly not eligible to participate in tenders floated by the Government because they do not possess prior experience or prior turnover.
In order to promote Startups, Government shall exempt Startups (in the manufacturing sector) from the criteria of “prior experience/ turnover” without any relaxation in quality standards or technical parameters
6.Fast Exit Mode
The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok Sabha in December 2015 has provisions for the fast track and / or voluntary closure of businesses.
In terms of the IBB, Startups with simple debt structures or those meeting such criteria as may be specified may be wound up within a period of 90 days from making of an application for winding up on a fast track basis
B. Funding Support and Incentives
1. Providing Funding Support
In order to provide funding support to Startups, Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.
In order to encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years.
3.Tax exemptions on Capital Gains
4. Tax Exemption for start-up for 3 years
With a view to stimulate the development of Startups in India and provide them a competitive platform, it is imperative that the profits of Startup initiatives are exempted from income-tax for a period of 3 years.
5.Tax Exemption on Investment above FM value
Under The Income Tax Act, 1961, where a Startup (company) receives any consideration for issue of shares which exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of recipient as Income from Other Sources.
In the context of Startups, where the idea is at a conceptualization or development stage, it is often difficult to determine the FMV of such shares. In majority of the cases, FMV is also significantly lower than the value at which the capital investment is made.This results into the tax being levied under section 56(2) (viib). Currently, investment by venture capital funds in Startups is exempted from operations of this provision. The same shall be extended to investment made by incubators in the Startups.
Note : Provided that a Startup shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose.
C. Industry-Academia Partnership and Incubation
These are fests, research centres and programmes the Govt wishes to Launch in order to help Start Up India. Not described in details.
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