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Startup-India-Action-Plan

Startup India Action Plan 2016

Startup India Action Plan 2016

Startup India is a flagship initiative of the Government of India to build a vibrant startup eco-system in India to drive economic growth and large scale employment opportunities. The Startup India initiative was announced at the Red Fort on the occasion of India’s 69th Independence Day. This was followed up by the Startup India Mission on January 16th, 2016 wherein Prime Minister Shri Narendra Modi released the Startup India Action Plan. In this article, we look at the highlights of the Startup India Action Plan 2016. You can also download a PDF version of Startup India Action Plan 2016.

Tax Exemption to Startup 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.”

During the startup stage, Entrepreneurs are typically struggling to evaluate the feasibility and create a viable product/service. During this period, Startups with limited resources fight rising competition and navigate through various challenges. Hence, in a view to promote Startups and provide them with better chances of succeeding, Startup India Action Plan has announced a three-year income tax exemption for Startups, provided the dividends of the Starts are not distributed. Know more about tax exemption for Startups.

Compliance based on Self-Certification

“In case of labour laws, no inspection will be conducted for a period of 3 years. In case of environment laws, Startups falling under ‘white category’ would be able to self-certify and only rand checks would be carried out”

Businesses operating in India have to comply with various Central and State regulations ranging from labour to environmental laws. These regulations are very cumbersome and non-compliance could lead to stringent penalties and fines. Hence, compliance with many of the laws requires significant effort in terms of time, money and effort on the part of the business.

The Startup India Action Plan 2016 proposes to remove these complexities and usher in an era of self-certification wherein compliance is easy and friendly. Accordingly, startups can now self-certify (self declare they are compliant from time to time) with 9 labour and environment laws. Based on the self-certification, no inspection will be conducted by departments like ESI or PF at business places of startups for a period of three years. Inspection can be conducted by the ESI or PF department only on receipt of a 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 under the “white category” can self-certify and will be subject to random checks only.

Discount on Patent Fee and Fast-Track Patent Examination

“Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.”

Intellectual Property Registration awareness is rising in India and the Startup India Action Plan 2016 will provide a tremendous boost to intellectual property registration. Startup especially must protect their intellectual property rights, as they operate with limited resources and manpower and can only survive against bigger competitors by properly protecting their intellectual property rights. Also, the valuation of a startup significantly rises after it obtains patent registrations.

Hence, the Startup India Action Plan proposes fast-tracking of Patent Applications and empanelment of facilitators to assist in the filing of IP applications with the Government bearing facilitation cost for any number of patents, trademarks or designs that a Startup may file. Under this scheme, Startups would bear the cost of only the statutory fees payable. The Government would bear facilitation cost.

ET-Wealth-Startup-India
ET Wealth Startup India

Tax Exemption on Capital Gains

“Exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Funds of Funds recognised by the Government”

It is important to provide incentives to investors for investing in the Startup ecosystem. Hence, the Startup India Action Plan proposes tax exemption on capital gains during the year for investors, if they have invested such capital gains in the Fund of Funds recognised by the Government. In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups. Know more about tax exemption for Startups.

Relaxed Norms of Public Procurement for Startups

“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.”

Often times, startups are not able to compete on par with experienced Entrepreneurs and Enterprises on public procurement or Government tenders due to experience requirements. Prior experience or prior turnover stipulations in tenders often prohibit Startups from participating in tenders.

Hence, to promote public procurement from Startups, the Startup India Action Plan has announced exemption of Startups from the “Prior experience/turnover” requirement.

Faster Exit for Startups

“The Insolvency and Bankruptcy Bill 2015 has provisions for the fast track and / or voluntary closure of businesses.”

Startups are high-risk ventures and a significant percentage of Startups fail. In the event of business failure, Startups must be quickly able to reallocate capital and resources to more productive areas. This will help more Entrepreneurs take up the business without the fear of failure.

Hence, the Startup India Action Plan proposes provisions in the Insolvency and Bankruptcy Bill 2015 for fast track or voluntary closure of businesses. Startups with simple debt structures or those meeting certain criteria will be allowed to wind up within a period 90 days from making an application for windingup.

Startup-India-2016
Startup India 2016

Tax Exemption for Investments above the Fair Market Value

“Investment by venture capital funds in Startups will be exempt from tax for consideration which exceeds the fair market value of such shares”

Under the Income Tax Act, if a Startup (Company) receives any consideration for issue of shares which exceed the fair market value of such shares, then excess consideration is taxable in the hands of the recipient as Income from Other Sources. In the context of Startups, it is very difficult to determine the FMV of such shares and sometimes lead to heavy taxes being levied. Hence, to promote investment by VC funds and incubators, startups will be exempted from these provisions. Know more about tax exemption for Startups.

Rs.10,000 Crore Fund of Funds

“In order to provide funding support to Startups, Government will setup a fund with an initial corpus of Rs.2,500 crore and a total corpus of Rs.10,000 crores over a period of 4 years.”

Funding is a key challenge for startups as they often lack collateral or existing cash-flows, making them ineligible for bank loans. To remove this bottleneck and provide funding for Startups, the Startup India Action Plan has announced an Rs.10,000 crore fund with an initial corpus of Rs.2500 crores. The fund will not invest directly into startups but will invest through SEBI registered Venture Funds.

Credit Guarantee for Startups

“Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC) or SIDBI is being envisaged with a budgetary corpus of INR500 crore per year for the next four years.”

Banks and financial institutions typically shy away from Startups due to the high failure rate and the stigma associated with failure of a Startup. In order to promote debt funding to startups from Banks and Financial Institutions, the Startup India Action Plan 2016 has proposed a Credit Guarantee mechanism through the National Credit Guarantee Trust Company (CGTMSE) or SIDBI with an initial corpus of Rs.500 crores per year for the next four years.

Startup India Hub

“To all young Indians who have the courage to enter an environment of risk, the Startup India Hub will be their friend, mentor and guide to hold their hand and walk with them through this journey.”

Due to limited guidance and access to knowledge, many of the young Entrepreneurs are not able to quickly venture out and establish a successful business. Hence, the Startup India Action Plan has proposed to create a single point of contact for the entire Startup ecosystem and enable knowledge exchange and access to funding.

This will be accomplished through a “Startup India Hub” which will work as a hub and collaborate with Central & State Government, Indian and Foreign Venture Capitalists, Angel Networks, Banks, Incubators, Legal Partners, Consultants, Universities and Research & Development Institutions.

Mobile App and Portal

“A mobile app for registering and tracking the status of registration application and at anytime download the registration certificate.”

Startup has a hard time figuring out the exact regulatory requirements to set up operations including the list of registrations and license required to commence operations. Further, there is also no platform for Startups to connect and collaborate with other ecosystem partners.

To reduce these frictions, the Startup India Action Plan 2016 proposes to create a mobile app and portal which would have seamless integration with the Ministry of Corporate Affairs. The app would allow users to track the status or registration applications, applying for various schemes under Startup India 2016 and collaborating with startup ecosystem partners.

Startup Fest for Showcasing Innovation

“To bolster the Startup ecosystem in India, the Government is proposing to introduce Startup fests at national and international stages.”

To create an effective startup ecosystem, active participation from academia, investors, industry and other stakeholders are required. To bolster such an ecosystem, the Government is proposing to introduce Startup Fests at National and International stages. As per the Startup India Action Plan, the Government proposes to conduct one fest at the national level and one event at the international level. The fests will have activities to connect with investors, mentors, incubators and Startups.

Atal Innovation Mission

“Launch of Atal Innovation Mission for Entrepreneurship and Innovation promotion”

To serve as a platform for promotion of world-class innovation hubs, grand challenges, startup businesses and other self-employment activities, the Startup India Action Plan has announced the launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization (SETU) program. The Atal Innovation Mission shall have functions of:

  • Entrepreneurship promotion through self-employment and talent utilization, wherein innovators would be supported and mentored to become successful entrepreneurs.
  • Innovation promotion: to provide a platform where innovative ideas are generated.

Harnessing Private Sector Expertise

“The Government will create a policy and framework for setting up of incubators across the country in public private partnership”

India lacks the availability of incubation facilities across various parts of the country which include physical infrastructure, provision of mentorship support, access to networks, access to market, etc., The physical infrastructure investment can be facilitated by the Government. However, requisite skills for operating an incubator are pivotal as well, for which expertise of the private sector needs to be leveraged. Hence, as per the Startup India Action Plan, the Government will create a policy and framework for setting up of incubators across the country in the public-private partnership.

Innovation Centres at National Institutes

“Setting up or scaling up of 31 centres of innovation and entrepreneurship at National institutes, 13 Startup centres and 18 Technology Business Incubators”

The Startup India Action Plan has announced the setting up or scaling up of 31 centres of innovation and entrepreneurship at national institutes, 13 Startup centres and 18 Technology Business Incubators to propel successful innovation through augmentation of incubation and R&D efforts.

Seven New Research Parks

“To promote innovation through incubation and joint R&D efforts between academia and industry, the Government has announced the setting up of 7 new Research Parks”

To promote innovation through incubation and joint R&D efforts between academia and industry, the Government has announced the setting up of 7 new Research Parks in institutes like IIT Guwahati, IIT Hyderabad, IIT Kanpur, IIT Kharagpur, IISc Bangalore, IIT Gandhinagar and IIT Delhi.

Promoting Startups in Biotechnology

“The Startup India Action Plan hopes to nurture approximately 300-500 new startup each year to have around 2000 startups in the biotechnology sector by 2020.”

The Department of Biotechnology will set up 5 new Bio-clusters, 50 new Bio-Incubators, 150 technology transfer offices and 20 Bio-Connect offices in research institutes and universities across India to create a strong biotechnology sector in India. A Biotech Equity Fund – BIRAC AcE fund will also be set up in partnership with National and Global Equity Funds to provide financial assistance to young Biotech Startups.

With this impetus, the Startup India Action Plan hopes to nurture approximately 300-500 new startup each year to have around 2000 startups in the biotechnology sector by 2020.

Programs for Students

“To promote research and innovation among young students, the Government has proposed various programs and schemes targeted at Students”

To promote research and innovation among young students, the Government has proposed the implementation of the following programs in the Startup India Action Plan.

  1. Innovation core program to target school kids with an outreach to 10 lakh innovations from 5 lakh schools.
  2. A grant challenge program to support and award Rs.10 lakhs to 20 student innovations.
  3. Earmarking of Rs.250 crore per year for fostering high-quality research amongst IIT students.

Annual Incubator Grand Challenge

“To build world class incubators, the Government has proposed financial assistance of upto Rs.10 crore for each of the selected incubators”

Incubators play a huge role in making an idea to a commercially successful venture with support and mentoring at various stages of the business lifecycle. Therefore, to build world-class incubators, the Government has proposed financial assistance of upto Rs.10 crore for each of the selected incubators for ramping up the quality of service and becoming a reference model for other incubators.

 

The action plan published by the Government of India under the Startup scheme can be accessed below:

Startup-Action-Plan

 

Eligibility Criteria for Startups under the Startup India Action Plan

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