Start-Up India

There has been great curiosity about the Start Up India campaign at various fora - what is it all about, who are eligible, what are the benefits etc etc. For the benefit of all who wish to understand and also take advantage, I have tried to put together various facets of the scheme.

The idea of a Startup India campaign was first mooted by Prime Minister Narendra Modi in his Independence Day address to the Nation from the ramparts of historic Red Fort on 15^th August, 2015. The objective- to promote entrepreneurship which in turn shall lead to job creation , through development of a favorable eco-system with less bureaucratic intervention, ease of doing business , financial incentives and easy availability of bank finance for start-up ventures.

The scheme combined with a 19 point action plan was formally launched on 16^th January 2016 by PM Narendra Modi at Vigyan Bhavan, New Delhi in the presence of Government ministers, senior bureaucrats and leading luminaries from the start up world such as Masayoshi Son (Founder & CEO of Japanese giant Soft Bank), Adam Neumann (We work), Venk Shukla (TIE), Kunal Behl (Snapdeal), Bhavish Agarwal (OLA), Nidhi Aggarwal (Karyaah), Shraddha Sharma (Your story), Pranay Chulet (Quikr), Deepinder Goyal (Zomato), Shashank ND (Practo), Travis Kalanick (Uber), Vijay Shekhar Sharma (Paytm), Sachin Bansal (Flipkart), Naveen Tewari (In mobi), Radhika Agarwal (Shop Clues), Ritesh Agarwal (OYO rooms) and many more. All the big guns were there. This itself shows the importance of this Government initiative.

The scheme was formalized through a gazette notification dated 17^th February 2016 issued by Ministry of Commerce and Industry, Department of Industrial Policy and Promotion (DIPP), Government of India.  DIPP has laid down the ‘startup’ parameters as under -

(a)        An entity would be a “start-up” up to five years from the date of its incorporation/registration. Conversely an entity shall cease to be a startup on completion of five years from the date of its incorporation/registration,

(b)         Entity means a private limited company (as defined in the Companies Act, 2013), or a registered partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2002). Thus it means that a proprietorship or a public limited company is not eligible as startup

(c )       Any such entity which has been formed by splitting or reconstruction of a business already in existence , shall not be considered a start-up :

(d)           Its turnover for any previous year should not exceed Rupees 25 crores ;

(e)       "Turnover” is as defined in the Companies Act, 2013. As per Section 2 (91) of the said Act, “Turnover” means the aggregate value of realization of amount made from sale, supply or distribution of goods or on account of services rendered, or both by the Company during a financial year. Here the turnover takes into account only the cash receipts during a particular FY and not revenues computed on accrual basis ;

(f)           The entity should be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property; It is considered to be working towards the above objectives, if it aims to develop and commercialize:-

(i) A new product or service or process ; OR

(ii) A significantly improved existing product or service or process, that will create or add value for customers or workflow;

The provisions do not cover development of processes with no commercial potential or no incremental value.

Once a particular entity is identified as a “Start up” it can be registered through DIPP portal or through a mobile app. An application to be recognized as a  “Startup”, has to be backed by one of the following documents :

(a)       a recommendation (with regard to innovative nature of business), as per DIPP format, from any Incubator established in a postgraduate college in India / any Incubator recognized by Govt. of India; or

(b)         a letter of support by any incubator which is funded (for the project) from Govt of India / any State Government as part of any specified scheme to promote innovation; or

( c)      a letter for minimum 20 % participation 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

(d)        a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or

(e)          a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.

Once such application with relevant document is uploaded, a real-time recognition number is issued to the startup.  In order to obtain tax benefits, a Startup needs to be certified as an eligible business by the Inter Ministerial Board of Certification. A Startup incorporated between April 1, 2016 and April 1, 2019 shall be eligible to obtain tax benefits proposed under the Section 80 IAC of Finance Act 2016.

On January 16, 2016 Prime Minister Narendra Modi had unveiled a 19-point action plan for start-up enterprises basically aimed at freeing them from red-tapism and increasing transparency / ease of doing business. Although it may look like a copy paste academic exercise to many, but it is important to enumerate all the 19 points here, so as to place a concise picture before the reader.

(1)          For reducing regulatory liabilities, start-ups to be allowed self-certification under various laws such as Gratuity, labour contract, provident fund, water and air pollution acts etc.

(2)          A Start-up India hub to be developed as a single contact point, to help exchange of knowledge and access to financial aid

(3)          Compulsory Registration through mobile app to reduce red tape ;

(4)          A fast-track system to promote awareness and adoption of  Intellectual Property Rights (IPRs) for Patent protection ;

(5)          Govt to establish Rs 10,000 crore fund over a period of 4 years with an initial corpus of Rs 2,500 crore , to support upcoming start-up enterprises. Fund to be developed by LIC and to be managed by a committee of private professionals selected from the start-up industry :

(6)          National Credit Guarantee Trust Company to be established with a budget of Rs 500 crore per year for the next four years to support the flow of funds to start-ups.

(7)          No Capital Gains Tax on primary investments in line with exemption to  investments by venture capital funds ;

(8)          No Income Tax for three years. This policy initiative will help in faster growth of start-ups.

(9)          Tax exemption for investments of higher value than the market price.

(10)     With the long term objective of inculcating entrepreneurship amongst students, Innovation-related study plans to be introduced in over 5 lakh schools and an annual incubator grand challenge to be organized to develop world class incubators ;

(11)        Atal Innovation Mission to boost innovation and encourage talented youth

(12)        A private-public partnership model to be considered for 35 new incubators and 31   innovation centres at national institutes ;

(13)       7 new research parks to be setup, including 6 in the IIT campuses and one in Indian Institute of Science campus, with an investment of Rs 100 crore each.

(14)       Establishment of 5 new biotech clusters, 50  new bio incubators, 150 technology transfer offices and 20 bio-connect offices in the country

(15)        Introduction of innovation related Dedicated programs in 5 lac schools ;

(16)        Formation of a panel of facilitators to provide legal support and assistance in submitting  patent applications and other official documents ;

(17)        Rebate of 80 % of total value on filing patent applications ;

(18)        Simplification of norms of public procurement and rules of trading ;

(19)       If a start-up fails, the government will assist the entrepreneurs to find suitable solutions for their problems. If they fail again, the government will provide an easy way out.

The detailed guidelines issued as above though show sincerity of the present Government for promoting entrepreneurship and growth, but the crux lies in implementation. Well meaning policies also turn ineffective, in the absence of proper implementation. But for our limited purpose, the above action points, should be taken as guiding principles. Each one of them, involves a full explanatory note, which is not the purpose of this write up. My aim is to familiarize the uninitiated to the policy framework of the Government. This basic understanding, will provide a fair idea of the environment which shall help in initial planning of a start-up venture.