Government Initiatives for Startups In India

Startup Funding

Government Initiatives for Startups In India

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Indian government has already started taking major initiative to support the new venture, particularly startup registration. NDA government's focus is to change the image of India and convert it into manufacturing Hub and spreading the slogan of Make in India across the world.

Before introducing slew of benefits accessible to start up, let's understand the definition of start up as per the start up India Action Plan.

On April 17, 2015, the Ministry of Commerce and Industry released a notification to define startups. There were many points that were consistent from the speech given by Prime Minister Narendra Modi during lifting the veil of the Startup India, Standup India policy.

According to the government notification, an entity will be identified as a startup-

  1. Till up to five years from the date of incorporation/registration.
  2. If its turnover does not exceed 25 crores in the last five financial years.
  3. It is working towards innovation, development, deployment, and commercialisation of new products, processes, or services driven by technology or intellectual property.

Further, such entity shall not be eligible to be called as start up if formed by splitting up or reconstructing of a business already in existence.

In order to obtain tax benefits, one has to obtain a certificate from the Inter-Ministerial Board of certification.

The notification also describes the word entity as a private limited company, or a registered partnership, or a limited liability partnership firm. However, there is nowhere mentioning of sole proprietorship or a one person company to be qualified as a startup.

The abovementioned points inter alia are some of core aspects of startup concept to consider the eligibility of a new entity in respect of accessing to the benefits of government scheme.

For registering a new entity as startup registration is quite simple as one needs to register through a mobile app (to be launched) or the portal of DIPP (Department of Industrial Policy and Promotion).

To nurture and provide an impetus to the start ups idea government has provided some of the tax benefits to start up as follows:

  1. No Tax: Honable finance minister Mr. Arun Jaitley in his budget speech for 2016-17 said it is proposed to provide a deduction of 100% of the profits for the first three years derived by an eligible start up which is set up before 1-4-2019.
  2. Funding: It has been decided in start up India action Plan to set up a Fund of Funds which intends to raise Rs. 25,000 crore annually to finance start up.

Keeping this thing in mind, a new section 54EE is proposed to be inserted to provide exemption from capital gain tax if the long term capital gain (LTCG) are invested in units of specified fund, as may be notified by central government (CG). The investment shall be allowed up to an amount of Rs. 50 Lakh.

Besides these monetary benefits, there are certain others benefits which accrue to start up are as follows:

  1. Self certification based compliance system in respect of nine labour laws and environment laws introduced for start up.
  2. No inspection for three years of start up business in respect of labour laws, environment law compliance post certification.
  3. 80% reduction in patent fees for start up.
  4. Bankruptcy bill to be introduced in parliament for faster winding up.

Also Read: How to Approach Investor to Raise Funds for Your Enterprise

These are the gist of the benefits accrues to the startups, and government has been engaging to make India as preferred destination to start business and setting up factories. In this process promoting startups is a tool to take India more closer to that vision.

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