Startup India – A Government Initiative

Startup India Scheme is an initiative by the Government of India for generation of employment and wealth creation. The goal of Startup India is the development and innovation of products and services and increasing the employment rate in India. Benefits of Startup India Scheme is Simplification of Work, Finance support, Government tenders, Networking opportunities. Startup India was launched by Prime Minister Shri. Narendra Modi on 16th January 2016. Let us learn more about Benefits and Eligibility of Startup India.

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Action Plan of Startup India Scheme

The action plan of Startup India is based on the following factors:

1. Simplification of Work

This initiative simplifies the work for the new entrants in order to motivate them. This includes following steps taken by the government:

• Firstly, the government has set-up Startup India hubs where all the works related to incorporation, registration, grievance handling, etc.
• Secondly, an application and an online portal is set-up by the government to facilitate registration from anywhere and anytime.
• Thirdly, the patent acquisition and registration is now fast for the startups.
• Lastly, according to the Insolvency and Bankruptcy Bill, 2015 facilitates fast winding up of the startups. A new startup can wind-up itself within 90 days of the incorporation.

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2. Finance Support

In order to motivate the startups, the government provides various financial supports. These steps taken by the government are as follows:

The government has set up a corpus of Rs.10,000 crores for 4 years (Rs.2500 crore each year). From such fund, the government invests in various startups.

Special funds are provided, investment in which leads to exemption from the income tax on the Capital Gain.
Income tax exemption is available for the startups for the first 3 years after the incorporation.

Under The Income Tax Act, where a Startup (company) receives any consideration for issue of shares which exceeds the Fair Market Value of the shares, such excess consideration is taxable in the hands of the recipient as Income from Other Sources.

Investment by venture capital funds in Startups is exempted from the application of this provision. The same extends to the investment made by incubators in the Startups.

You can get all the notifications of Startup India action plan here.

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Benefits of Startup India

• Financial Benefits
• Income Tax Benefits
• Registration Benefits
• Government Tenders
• Huge Networking Opportunities

1. Financial Benefits

Most of the startups are patent based. It means they produce or provide unique goods or services. In order to register their patents, they have to incur a heavy cost which is known as the Patent Cost.

Under this scheme, the government provides 80% rebate on the patent costs. Moreover, the process of patent registration and related is faster for them. Also, the government pays the fees of the facilitator to obtain the patent.

2. Income Tax Benefits

Startups enjoy a good amount of benefits under the Income Tax head. The government exempts their 3 years income tax post the incorporation year.

But they can avail it only after getting a certificate from the Inter-Ministerial Board. Also, they can claim exemption from tax on Capital Gains if they invest money in specified funds.

3. Registration Benefits

Everyone believes that incorporation and registration of business are far more difficult than running it. It is because of the long and complex steps of registration.

Under the Startup India scheme, an application is there to facilitate registration. A single meeting is arranged to at the Start-up India hub. Also, there is a single doubt and problem-solving window for them.

4. Government Tenders

Everyone seeks to acquire Government tenders because of high payments and large projects. But it is not easy to acquire the government tenders.

Under this scheme, the startups get priority in getting government tenders. Also, they are not required to have any prior experience.

5. Huge Networking Opportunities

Networking Opportunities means the opportunity to meet with various startup stakeholders at a particular place and time. The government provides this opportunity by conducting 2 startups fests annually (both at domestic as well as the international level).

Startup India scheme also provides Intellectual Property awareness workshop and awareness.

Registration of the Startup can be done only from following types of companies

1. Partnership Firm
2. Limited Liability Partnership Firm
3. Private Limited Company

Eligibility for Registration under Startup India Scheme

1. Firstly, the company to be formed must be a private limited company or a limited liability partnership firm.
2. Secondly, the firms should have obtained approval from the Department of Industrial Policy and Promotion.
3. Thirdly, it must have a recommendation letter by an incubation.
4. The firm must provide innovative schemes or products.
5. It should be a new firm or not older than five years.
6. The total turnover of the company should be not exceeding 25 crores.
7. Lastly, it should not be a result of splitting up, or reconstruction, of a business already in existence.

Challenges faced by Startup India

1. People generally believe startups are just about thinking about a new idea or plan. But in reality, execution of such plan is more necessary than just thinking about it.
2. The view or perspective of the government on startup India plan is quite short-term in nature. It does not look at the long-term path of the startups.
3. For the success of any new business, competent workforce is necessary. But in case of startups, skilled workforce is not possible due to the lack of funds at the initial phase.
4. The risk of reaching failure is greater in the startups as compared to other organizations. It is because they tend to take steps quite fast.

Solved Question on Startup India

Question: For how long would recognition as a “Startup” be valid?

Answer:  An entity would cease to be a ‘startup’ upon expiry of:

a) 5 years from the date of its incorporation/ registration, OR

b) If its turnover for any of the financial years has exceeded Rs. 25 crore