It is about creating prosperity in India. Many people who dream of starting their own businesses lack the resources to do so. As a result, their ideas, talent and capabilities remain untapped. What’s the end result? – the country loses out on wealth creation, economic growth and employment. This write-up which is a guide for startups in India will get you to think why you should start one or if you have already floated one, why you should keep it afloat!
Startup India can boost entrepreneurship, economic growth and employment across the country.
So, what is in this guide for startups in India?
- Self-Certification for Compliances
- A handful of Tax Benefits and relaxations
- Choose your investor
- Online Hub for Like-Minded Folks
- Easy Entry and Exit
- Union Budget 2019 Takeaways
- Registration on a Mobile App
- State Government to the Rescue
Register with Ease!
To get the “Startup” recognition under Startup India, you just have to follow these 7 steps:
- Incorporate your business
- Register with Startup India App
- Upload certain documents
- Answer whether you would like to avail tax benefits
- Self-certify that you comply with the 4 conditions listed below*
- Immediately get a registration number
- Other areas of interest – patents, funding etc.
The Ministry of Commerce and Industry brought out a notification wherein an entity would continue to be called a ‘Start-Up’ if (Conditions*):
- It has only been 10 years or less since the date of incorporation
- Incorporated as a private limited company, partnership firm or LLP.
- Turnover in any of the above financial years, not > 100 Crores
- Your organization provides intellectual property or technology-driven products or services and is capable of generating employment.
- Your organization should not be one split-up or reconstructed from an existing business.
Self-Certify Labour Compliances!
The government has made the process of conducting inspection more meaningful and simpler!
- The government will now allow startups to self-certify the labour and environmental compliances through the app. They will conduct no inspections for labour laws in the first 3 years.
- The govt may inspect startups upon receipt of a credible complaint filed in writing and approved by officer one level senior to the inspecting officer.
- The start-ups may self-certify compliance in respect of the following labour laws:
|Payment of Gratuity Act 1972||ESI Act 1948|
|EPF and Miscellaneous Provisions Act 1952||Inter-State Migrant Workmen Act 1979|
|Contract Labour Act 1970||Other Construction Worker’s Act 1996|
Socialize and Meet!
An important part of this guide for startups in India is to encourage networking The Startup India Hub is already operational and operates as a single point of contact for the entire startup ecosystem enabling an exchange of knowledge.
Some standout features of this platform are as follows:
- Networking Platform – providing users with access to other user profiles, connection & message requests, relevant startup events etc.
- Artificial Intelligence – a platform to provide chatbots to automatically collate, update information and deliver a relevant reply to queries.
- Location-Based Discovery – to be able to deliver custom recommendations to users about incubators/accelerators depending on their location.
- Integrated Learning Development – a step-by-step guide on how to incorporate, how to pitch to investors, useful templates and more.
In addition to above, the govt has taken initiatives to set-up 75 startup support hubs in NIT’s, IIT’s, the Indian Institutes of Science Education and Research (IISERs) and National Institutes of Pharmaceutical Education and Research (NIPERs).
Get Rebate on Filing Patent Applications!
As discussed earlier, the govt has proposed innovation as the base of any entity for considering a company as a startup. For this purpose, Patents provide an exclusive right to owners to avoid any kind of duplicity and reduce the chances of having someone copy their designs.
Good News! Dual benefits are provided by the Government in this regard:
- 80% rebate in patent filing fees – this move has helped startups to curb costs in the crucial formative years.
- Facilitator fees for filing – to be borne by Government
- Statutory Fees (after rebate) – to be borne by the Startup
- Fast-track examination of the filing process – this promise was made by the Government with the intent that startups can realize the value of the IPR’s at the earliest.
Other benefits include –
empanelment of a group of ‘facilitators’ to provide general advisory on different IPR’s, protect and even promote IPR’s in other countries. In general, you can seek the help of these facilitators in filings, hearings and disposal of IP applications.
Tax Reliefs at your reach!
Interesting and enthralling.
Interest, inflation and taxation are words which are synonymous with our country. However, as far as startups are concerned, the govt has provided certain tax reliefs to boost their growth.
Let’s directly dwell on these reliefs:
We have included some relief in this guide for startups in India, these are as follows-
- Long-term capital gains from the sale of a residential property (land/building) will be exempted if the individual invests the sale consideration in more than 50% of the equity shares of an ‘eligible company’.
- ‘Eligible Company’ includes an ‘eligible startup’*
- This eligible company with the amount received on the sale of shares to the individual will have to now purchase new assets within one year from date of subscription of shares.
- The amount of exemption is worked proportionately to the cost of the new plant and machinery purchased by the eligible company.
- The lock-in-period i.e. period for which transfers cannot be made for the equity shares as well as for the new assets purchased shall be 5 years from the respective acquisition dates.
(a) Incorporated between 1/4/2016 and 31/32021
(b) Total turnover of business <or= 25 Cr
(c) holds a certificate from IMBC (Inter-Ministerial Board of Certification)
Making investments in funds notified by the Government
- Long-term capital gains from the sale of a capital asset will be exempted if the individual invests such sale consideration in units of funds notified by the Central Government (funds raised for startups and issued before 31/3/2019)
- Maximum investment that can be made (maximum exemption) shall be INR 50 Lakhs and the same shall be made within 6 months from the transfer of the original asset.
- The amount of exemption is available to the extent of investment made in such notified funds.
It is quite clear that the main purpose of the above 2 exemptions is to stimulate a larger quantum of investments in startups.
No Tax on Profits for 3 consecutive years – ‘Tax Holiday’
- 100% of the profits derived by an ‘eligible startup’ for any 3 consecutive years out of 7 years beginning from the year in which the start-up in incorporated is the amount of deduction.
- ‘Eligible Startup’ has the same meaning as explained in the first exemption stated above.
- Entrepreneurs should not form such startup by splitting up or by reconstruction of an already existing business
- A startup’s total turnover should not exceed INR 25 Crores in the year in which such deduction is claimed.
Call your investors – ‘Angel Tax’ Exemption
- Earlier, if a startup receives consideration from a resident Indian for issuing shares at a premium, then tax was levied on aggregate consideration received over and above the fair market value of those shares.
- Recently, the Government, subject to certain conditions after bowing to “sustained pressure” from startups has eased this burden of paying taxes on such premiums received. A big relief!
So, what are these conditions?
There are some conditions for exemption of angel tax as per this guide for startups in India, these are as follows-
- Recognized by Department for Promotion of Industry and Internal Trade (DPIIT).
- Total amount of paid-up share capital + share premium of the startup after issue does not > 25 Crores*
- The startup has not invested in land/building/shares/securities/motor vehicles or aircraft (> 10 lakhs) / jewellery other than held as its stock-in-trade.
*The 25 Crore Aggregate capital condition is not applicable if shares are issued to a:
- non-resident Indian;
- a venture capital company/fund;
- to a company whose shares are frequently traded on a stock exchange having net worth and turnover of INR 100 Crores and INR 250 Crores preceding the year of issue.
Companies Act 2013 Relaxations
- Companies should hold a minimum of 4 Board Meetings every year with a gap of not more than 120 days between 2 such meetings.
- However, if your startup is a private company, then the requirement is at least one Board Meeting in each 6 calendar months with a gap of not less than 90 days between 2 such meetings.
- If your startup is not a partnership firm and has become insolvent, then the facility of a fast track insolvency resolution process is available rather than the usual 180-day corporate insolvency resolution process.
- The Ministry has also exempted a startup company from preparing a cash flow statement since mostly funds come in from investors or from Government itself.
Easy Entry Easy Exit!
The legal formalities which are required to be undertaken for entry and exit for startups have been simplified as a part of the latest reforms by the Government.
The Govt has in addition to the ease of entry also taken efforts to make exit trouble-free:
- Getting the name struck-off from the register of companies
Earlier, there were more than 80% of startups which collapsed within its first 3 years of starting up. Now, to instil in confidence and courage, the Government have eased the procedures on striking off.
- Fast-track Insolvency Resolution
The Govt has now halved the winding-up process from 180 days for companies to just 90 days for others which include startups.
State Government Efforts
In its efforts to build a stronger startup ecosystem in Kerala, the Government has managed to tap into private investment funds to raise INR 1000 crore in corpus funds for budding entrepreneurs.
The Govt will make this available over the next four years.
- Recently, the State Government chose investors – Unicorn India Ventures, Exseed Electron Fund, Indian Angel Network and Speciale Incept Fund for the goal.
- The pact mandates investing 25 % of the volunteered amount in the next four years and therefore by 2022 the state is guaranteed with a minimum investment of INR 300 crore.
- The first leg of the 2017- launched ‘Seeding Kerala’ saw encouraging results, prompting the Government to raise INR 60 Crores.
- One of the investors – Exseed, will invest solely in startups based in the fields of space and IT. The state also encourages funds for startups working in the sectors of cancer treatment and disaster management.
The Kerala Start-up Mission (KSUM) among other facilities, is offering an incubation facility for startups. You can apply for the KSUM membership if you’re interested. The offices are located in Trivandrum, Calicut, Ernakulam and even in Kozhikode.
Choose your investor
Well, what’s the main reason behind the collapse of almost 80% of startups earlier?
–Lack of funding– the long painstaking yet exciting journey from idea to revenue-generating needs a fuel called capital.
So, how do you finance your startup?
First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success. You can invest from your own savings or can get your family and friends to contribute.
Put up a detailed description of your business on a crowdfunding platform and then mention the goals, plans for making a profit, how much required and for what reasons. Then consumers can read about the business and give money if they like the idea.
Get Angel Investment
This alternative form of investing generally occurs in the early stages of growth, with investors expecting a up to 30% equity. They prefer to take more risks in investment for higher returns.
A recommended site to engage with angels is ‘Let’s Venture’
Union Budget 2019 – Key Takeaways
3 Relaxations for Capital Gain Exemption (Sec. 54GB)
- As discussed before, to further incentivize investments in start-ups, the requirement to sell the original asset by the individual (residential property) has been extended from 31/3/2019 to 31/3/2021. Earlier, the asset had to be sold within 1/4/2012 and 31/3/2019.
- The minimum shareholding of 50% has been reduced to 25% to avail the exemption.
- The lock-in period of 5 years for the transfer of ‘New Plant & Machinery’ has been reduced to 3 years in case of computer or computer software.
Relaxations for Carry Forward and Set-off (Sec. 79)
- The Govt shall permit an unlisted start-up to carry forward and set-off losses against income of the previous year even on the satisfaction that:
In the year of set-off, at least 51% of shareholding should be continued to be held by the same persons as they had on 31st March of the year in which loss was incurred (Earlier, it was 100% shareholding condition for startups alone)
Angel Tax Exemptions on certain conditions [Sec. 56(2)(viib)]
- I have discussed this in brief under the head ‘Tax Reliefs’.
Pending Assessments and Grievances
- CBDT to make special administrative arrangements for pending assessments and redressal of grievances.
- Officers cannot carry out any enquiry or verification without obtaining approval of a supervisory officer.
‘Shark Tank’ – A T.V. Channel for Startups
- Probably the most interesting pick of the maiden budget speech! The dedicated TV channel for startups will allow more and more people to present and propagate their ideas and to interface with investors.
- The channel, if hosted like the American TV show ‘Shark Tank” will also help enterprising individuals to build brands and reach out to potential customers and clients.
Opening up FDI for niche sectors
- The FM has proposed a 100% FDI for insurance intermediaries and has assured to take steps to open FDI in media, animation and aviation encouraging startups in these sectors
- The plans to strengthen banks, NBFCs, debt and bond markets will also help startups to find further sources for tapping funds.
It is quite clear that the Government is keen to encourage entrepreneurship to solve India’s employment problem. Creating a suitable environment for startups is definitely a key part to resolve the same.