Startup Action Plan is initiated by PM Narendra Modi which intends to build strong business environment, promote economic growth and boost employment opportunity in the country.The start-up policy will provide an easier way to entrepreneurs to set up new business networks.
The focus of this policy is on the following:
Under this scheme startup means, an entity which is in its initial or developing stage but 5 years have not elapsed from the date of its Incorporation/Registration. These entities shall offer product and services that are not offered before, in the market. Basically these are the entities which work towards innovation, development, deployment or commercialization of new Products, processes or services driven by technology or intellectual property.
Under this scheme annual turnover of startup in any preceding financial year must not exceed INR 250 million (approx. 3,751,500 USD).
“Entity” means Private Limited Company, Limited Liability Partnership (LLP), Registered Partnership Firm and One Person Company. It is needless to say that the most common structure would be a Private Limited Company. Neither an unregistered entity like a proprietorship firm nor a public limited company is considered an eligible entity for startup.
But only act of developing:
Would not be covered under this definition
To qualify as an eligible startup, the entrepreneur should register the entity as follows:
[Additionally, to avail the tax benefits under startup one has to obtain a certification from “Inter-Ministerial Board”. Further details on this have been covered elsewhere in this blog]
Profit generated by startups will not be taxable for any 3 consecutive years out of first 5 years.
As per Finance Act 2016, Section 80IAC of Income Tax Act, 1961 allows 100% deduction for eligible startup. The deduction of 100 % is allowed for 3(three) consecutive assessment years and assessee can chose the start year of 3(three) consecutive years out of 5(first) five year.
Here, the startup needs to satisfy a different set of eligibility criteria.
Long term capital gain shall be exempt if invested in specified assets (units of fund formed by government under startup action plan) within a period of 6 month from the date of transfer.
Shares issued by startup above the fair market value to venture capital fund, incubators and angel investor are exempted from the capital gain tax above the fair market value. Current Income Tax law provides that if shares are issued by a company at a price which s higher than the fair value of the share, the additional amount received by the company towards share premium account is treated as notional gain and is taxable.
Patent fees for startups have been reduced by 80 per cent. Further, startups will be helped through facilitation centers by lawyers to file patents application without any charges.
Though the Startup companies will have to comply with all the applicable Labour laws but there shall be no inspections by the Department for the first 3 years. Self-declaration by the Startup company w.r.t various compliances will suffice. This relaxation is with respect to nine Labour laws (e.g. Payment of Gratuity, Contract Labour and Industrial Dispute Act etc.) and three Environment laws for a period of three years from the date of setting of unit.
Startup company may however be inspected on the basis of written application with the relevant Department of the Ministry and that too on the basis of credible and verifiable complaint of violation.
In order to provide funding support to startups, the Government has set up a dedicated fund of INR100 billion to provide both equity and debt support, where INR25,000 million will be provided each year for the first four years.
A credit guarantee mechanism will help startups raise debt funding through the formal banking system through National Credit Guarantee Trust Company (NCGTC)/SIDBI, which has an annual corpus of INR. 5000 million for the next four years.
Startup policy has provided an easier process to wind up the startup which fulfils the prescribed conditions. These provisions are contained in The Insolvency and Bankruptcy Code, 2015. Startups may be wound up within a period of 90 days by making of an application for winding up on a fast track basis.
The value of an idea lies in the using of it. Hence, the Govt. has provided a platform to start a business from an idea. Keeping in mind all the complexity to start a new business, Government has launched startup action plan. To start a business, entrepreneurs always worried about funding facilities, registration process, Taxation, legal compliances, consequence of failure of business etc. Therefore Government has provided suitable provisions for startup. The main motive of the Government is to create innovative business environment in India. So, it’s a lucrative platform where a person can convert its ideas into a business.
Nice article Vikash. Very well covered the aspects.