Government Standing Up to Foster Startups

India Tricolour FlagThis guest post is by Archana Khosla, Founder Partner, Vertices Partners & assisted by Ketki Saxena, Paralegal, Vertices Partners.

“The most important thing is this: to sacrifice what you are now for what you can become tomorrow”
― Shannon L. Alder

Gone are the days of uncertainty and incertitude on the benefits promised under the Startup India Action Plan, as the Central Government is persistently coming out with answers in the form of circulars and notices, notifying and confirming the benefits proposed therein.

The Government has been doing chores to concoct a policy structure aiming to ease the regulatory abode for startups in India.

Earlier this year, in the month of January (2016), the aspiring Startup India maneuver was initiated with the Startup India Action Plan (“Action Plan”), revealing perks and ideas to advance innovations and startup ecosystems in India. The Action Plan has proposed to simplify existing complex and long drawn procedures for matters such as company registration, labour law compliances and income tax for a certain number of years for startups. Subsequently, few of the propositions have been implemented by various Ministries and Departments, which are discussed below.

Eligibility Criteria for Startups to Avail the Benefits:

For an entity (whether a Private Limited Company, a Registered Partnership Firm or a Limited Liability Partnership) to be identified as a startup, the following checkpoints should be adhered to:

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The entity would need to be a stand-alone firm and a splitting of an already existing conglomerate would not be considered as a startup for these purposes.

Launch of Startup India Web Portal/Mobile:

The Department of Industrial Policy and Promotion (DIPP) launched the Startup India web portal (http://startupindia.gov.in/) and the mobile application (Startup India) enclosing all the information concerning the Action Plan and the notifications issued by the Government Ministries for the same, in April 2016. The portal/app provides on-the-go accessibility for registering of startups with relevant agencies of the Government, tracking the status of the application, filing of compliances, collaboration with various startup ecosystem partners and applying for various schemes.

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Government Benefits:

For availing various benefits under different Government schemes inclusive of schemes cited in the Action Plan, an entity needs to get recognized as a ‘startup’ by applying on the Startup India App/portal with any of the 6 (six) documents as specified by the Ministry of Commerce and Industry. The portal/app caters to the startups with a real time recognition certificate, which will save the startup a lot of time.

In relation to the proposal in the Action Plan pertaining to providing financial support to startups through Fund of Funds, as per news reports, the Small Industries Development Bank of India (“SIDBI”) has sanctioned INR 1,000 Crores to 30 SEBI registered venture capital funds.

Another compelling stride initiated by the Government is to trim the regulatory burden on startups by keeping the compliance cost low. As the regulatory formalities requiring compliance with sundry labour laws and environment laws are sluggish and arduous, often new and small entities are oblivious of nuances of the issues and can be subjected to intrusive action by governing agencies. The notice dated 12th January, 2016, issued by the Ministry of Labour and Employment addresses the aforesaid issue affirming that startups in the first year of setting up may be asked to only submit an online self-declaration without any inspections under the labour legislations viz. Building and Other Construction Workers Act,1996, Inter-State Migrant Workmen Act,1979, Payment of Gratuity Act,1972 and Contract Labour Act,1970 which requires entities to be inspected by inspectors. Further, from second year onwards up to third year, entities may be taken up for inspection only when a credible complaint is filed in writing and approved by a senior official. Identical steps have been taken to boost startups inciting apprentices.

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Further, earlier the benefits pertaining to 20% (twenty percent) mandatory procurement from Micro and Small Enterprises (MSME) could only be availed of if certain eligibility criteria’s, like prior experience or prior turnover were met. In light of the fact that startups are normally MSME’s, they were not able to participate due to strenuous eligibility criteria attached to the tenders. In relation to this, pursuant to the proposal in the Action Plan, to equip leverage to the startups which are generally not at par with the accomplished entrepreneurs, the Government has eased out the norms of Public Procurement vide a circular dated 10th March, 2016, by relaxing the condition of prior turnover and prior experience with respect to MSME’s in all public procurements, subject to meeting of quality and technical specifications.

Intellectual Property Benefits/ Protection:

To promote awareness and adoption of intellectual property rights (“IPRs”) by startups and encourage them in protecting and commercializing the IPRs, the Government has come out with “The Scheme for Startup Intellectual Property Protection” (SIPP), to facilitate filing of Patents, Trademarks and Designs by innovative startups. Some of the focal points in the scheme are-

- Fast tracking of startup patent applications
– Panel of facilitators (like advocates and trademark/patent agents) to assist in filing of IP applications, wherein     the Government will bear the facilitation cost
– Rebate on filing of application

Currently the scheme is launched on a pilot basis for a year.

In order to obtain tax and IPR related benefits, a startup is required to be certified as an eligible business from the ‘Inter Ministerial Board’ of Certification led by the DIPP.

Economic Benefits:

The Government also proposes to provide certain tax exemptions with effect from April 1, 2017, for the benefit of budding entrepreneurs and startups, by amending and introducing certain new sections via the Finance Act, 2016. Some of the key propositions in this regard are:

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- Providing tax exemption on capital gains arising from the transfer of long-term capital assets during the year, in the event the transferor/assessee invests the whole or part of such capital gains, within a period of six months from the transfer, towards subscription of unit or units of funds (as recognized by the Government) issued before April 1, 2019, which funds would in turn invest in startups.

- Providing tax exemption on capital gains arising from transfer of a residential property, if such capital gains are invested towards subscription of shares of a startup.

- Allowing startups to deduct 100% of the profits and gains derived from the eligible business of a startup, while computing the total income of such startup, which deduction may, at the option of the startup be claimed for any three consecutive assessment years out of 5 years, beginning from the year when the startup is incorporated.

With the pro-activeness of the Government towards the Action Plan, it is a refreshing change in terms of creating a sense of positivity amongst the entrepreneurs staring up and they are in fact quite optimistic about the fact that once this Action Plan is streamlined and implemented in its entirety, the entrepreneurs will be able to unleash their full potential and explore their talent and ideas without being anxious of the sword of intricate compliances hanging over their heads.

In the words of Horace, “begin, be bold and venture to be wise.”

Disclaimer: This is a guest post. The statements, opinions and data contained in these publications are solely those of the individual authors and contributors and not of iamwire and the editor(s)

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