On 16th January, 2016 Prime Minister Narender Modi announced Startup Action Plan Policy for economic growth and to empower the start-ups. Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities. The Government through this initiative aims to empower Startups to grow through innovation and design.
TERM OF STARTUP
In his August 15th speech, PM Modi had declared that Indian Govt. will soon launch a special program to help and assist startups in the country. A special fund of funds was promised, along with several other benefits.
Before “startup India stand up” program is launched on 16th January government wants to clear the definition of start up and removes the ambiguity and confusion regarding the term‘ startup’ and India Government wants to clear this doubt. The Government wants to clearly define what exactly a startup is, and wants to understand which companies can be categorized under this definition. As per reports coming in, those companies which have been formed after splitting up from an existing corporation or the ones which are in existence since 5 years and exceed Rs 25 crore in annual will NOT be defined as a startup. Additionally, the companies which has been formed under Government sponsored incubators, and/or formed via special schemes created by Govt. will also be excluded from the advantages proposed under ‘Startup India Standup India’ program. This may seem discouraging for those companies which may have availed small assistance from the Govt. in the past or those which have been slogging for the last 5 years, but still have less traction and less visibility.
WHAT IS ‘STARTUP’?
A startup is a company that is in the first stage of its operations. These companies are often initially bank rolled by their entrepreneurial founders as they attempt to capitalize on developing a product or service for which they believe there is a demand. Due to limited revenue or high costs, most of these small scale operations are not sustainable in the long term without additional funding from venture capitalists.
REASONS TO CHOOSE A START UP
- You’ll have more responsibility.
Working at a startup probably means you’re part of a small team, most likely in the single digits. Because of the nature of having such a small team, there is probably nobody else in the company who has the same skillset as you, approaches problems in the same way you do, or even thinks the same way you do. This pushed you to be more versatile, more reliable, and more productive in your work.
- You’ll be given more opportunities.
I probably don’t need to tell you that most startup jobs won’t pay as well as some of the bigger corporate and business jobs. You (or your degree) may be worth more than a startup is able to pay. But working at a startup offers a different type of reward: an incentive-based system that isn’t based on dollars, but rather in skills attained and opportunities seized.
- You’ll be able to do a lot of different things.
One of the biggest complaints I hear from peers who have entered into a more-structured, corporate position is that they are generally stuck with their main task and don’t get to branch out into other areas. Whether it’s writing, designing, filling out spreadsheets, or any other task, it’s usually a one-person-fits-one-task kind of position. If that sounds like your startup job, then, I hate to tell you, but you’re doing something wrong. Working at a startup will allow you to try on a lot of different hats, even that weird one that you didn’t think you would ever like, but find out that you did.
- You will learn from true innovators.
People who start their own business have a different mental and professional makeup than those who have never gone off to create something of their own. Entrepreneurs are defined by seeing a problem and thinking of an innovative and original way of addressing it. Because of this innovative nature, entrepreneurs are some of the best people to learn from. They approach problems differently, are constantly finding solutions, and are driven to make the most out of their time and work. Every successful startup has true innovators, and if you find the right ones, you’ll learn plenty.
- Your work will be recognized (as will your failures).
If I’ve learned anything from watching TV shows and movies, it’s that if you work at a big company, chances are that all of your hard work is going to be ignored by the boss or someone else is going to snag the credit. But at a startup, it’s nearly impossible not to notice a job well done or to give credit where credit is due. If you succeed, the small team will recognize it instantly, and the praise and glory is yours to bask in. Spread your arms in glory, my friend, your work has been recognized. On the flip side of that coin is that it’s also really easy to see when you’ve screwed up. For two reasons, this is a good thing. The first is that it’s nearly impossible to slack off to. Within a few days, your coasting and slacking will be noticed and the rest of the team will wonder why they are working harder than they have to. That keeps you focused and on your game. The second reason is that because failure is easier to notice, you’ll make sure to eliminate mistakes in order to avoid disappointing your colleagues. Stay focused, startup employee, and your successes will be recognized and your failures minimized. And when the rest of the team says “We couldn’t have done it without you,” you can be confident that they mean it.
- You’ll work in an awesome atmosphere.
Everyone else who works at a startup has the same drive and excitement for creation as you do. The startup community is a great, close-knit group. All around you, people are coming up with innovative solutions to age-old problems or making that new tool that simplifies or enhances your life in some way. That entrepreneurial spirit is contagious, and if you don’t feel it or catch it, then you’re actively avoiding it.
- You’ll learn to be frugal.
Working at startup probably means that money is tight. Whether you’ve been showered with investor love or the founder has a really wealthy uncle, the company will still be thinking of ways to do more with less. No extravagance, no frills, no extraneous booze cruises. Instead, the business development intern will learn how to design and code the blog, the writer will sometimes do the dishes, and at the start you’ll find a way to fit nine people around an eight person table. This frugality and monetary responsibility will undoubtedly bleed into your own life as well, and you’ll end up finding new ways to find fulfillment other than burning the money you earn. Instead, you’ll probably discover a joy in creating and doing, rather than consuming. You’ll find happiness in being part of a team that is trying to make other people’s lives easier, more fun, and more manageable. Your entire life will take on a meaning of creation, and you’ll be more energized, both physically and mentally, to take on new hobbies and start your own personal projects. In the startup world, it’s all about creating more and consuming less.
- You’ll be instilled with the value of hard work, ownership, and self-sustainability.
Maybe more important than any other benefit of working at a startup is the realization that hard work, creative thinking, and tenacity are worth a whole lot. Once you’ve created something of your own, something tangible and whole, something you can touch, feel, or use, you really begin to appreciate personal ownership. For those who do not actively create, or are continuously creating for someone else’s benefit, it’s difficult to understand the great importance of personal ownership and the liberty needed to pursue that ownership. Working at a startup and spreading the news of your team’s product, a product that you helped bring into existence, instills the value of that ownership and gives you pride in your work. It is this pride, in your team’s hard-work and ability, that teaches you the importance of protecting those who do create innovative solutions and take risks.
STARTUPS ELEGIBILITY FOR INDIA INCENTIVES & TAX BENEFITS
Private Limited Companies, Limited Liability Partnership and Registered Partnerships are eligible for the Government schemes. Those Companies, LLPs and Registered Partnerships registered even before the announcement are eligible and it is best for Entrepreneurs starting a new business hereon-forth to register a Private Limited Company or Limited Liability Partnership or Registered Partnership.
Following are the Eligibility criteria for a business is considered to be a startup under the startup Action Plan
If it aims to develop and commercialize new product or service or process and significantly improved existing product or service or process, that will create or add value for customers or workflow.
For Eligibility, the startup should:-
- Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator established in a post-graduate college in India; or
- Be supported by an incubator which is funded (in relation to the project) from GoI as part of any specified scheme to promote innovation; or
- Be supported by a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from an Incubator recognized by GoI; or
- Be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/ Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business;
- Be funded by GoI as part of any specified scheme to promote innovation;
- Have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.
Following are not considered as startup for India Action Plan:-
- Products or services or processes which do not have potential for commercialization; or
- Undifferentiated products or services or processes; or
- Products or services or processes with no or limited incremental value for customers or workflow.
CERTIFICATION FROM INTER-MINISTERIAL BOARD
Startup would be eligible to obtain tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose. The Inter-Ministerial Board setup by DIPP would validate the innovative nature of the business for granting tax related benefits. However, approval from the Inter-Ministerial Board shall not in any manner, limit or absolve the Startup from any liability incurred in case of any misrepresentation/ fraud arising from submission of such application and/ or supporting such application.
EXEMPTIONS FOR STARTUPS
Tax Exemption on Capital Gains
Now days Funding is the main problem for business, the government take initiatives to promote investment into start-ups by mobilizing the capital gains arising from sale of capital assets.Due to their high risk nature, Startups are not able to attract investment in their initial stage. It is therefore important that suitable incentives are provided to investors for investing in the Startup ecosystem. With this objective, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government. This will augment the funds available to various VCs/AIFs for investment in Startups.
In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups. Currently, such an entity needs to purchase “new assests” with the capital gain received to avail such an exemption. Investment in ‘computer or computer software’ (as used in core business activity) shall also be considered as purchase of ‘new assets’ in order to promote technology driven Startups.
3 Years Tax Exemption for Startups
The Startup action plan said profits from start-ups will be exempted from income tax for three years to address their working capital requirements. “The exemption shall be available subject to non-distribution of dividend by the startup,”
During the initial years, budding entrepreneurs struggle to evaluate the feasibility of their business idea. Significant capital investment is made in embracing ever-changing technology, fighting rising competition and navigating through the unique challenges arising from their venture. Also, there are limited alternative sources of finance available to the small and growing entrepreneurs, leading to constrained cash funds.
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.
Tax Exemption on Investments above Fair Market Value
Under The Income Tax Act, 1961, where a Startup (company) receives any consideration for issue of shares which exceeds the Fair Market Value (FMV) of such shares, such excess consideration is taxable in the hands of recipient as Income from Other Sources.
In the context of Startups, where the idea is at a conceptualization or development stage, it is often difficult to determine the FMV of such shares. In majority of the cases, FMV is also significantly lower than the value at which the capital investment is made. This results into the tax being levied under section 56(2) (viib).
Currently, investment by venture capital funds in Startups is exempted from operations of this provision. The same shall be extended to investment made by incubators in the Startups.START UP INDIA ACTION PLAN 2016
- 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.
- Self-certification based compliance.
- No inspection for the first three years.
- Includes self-certified environmental regulation.
- Startup India Hub. A single point of contact.
- A system of hand-holding.
- A mobile app to start a startup in one day.The app will have a small application form that can be easily filled for your registration.
- Patents usually take months. We are bringing a scheme to make filing patents simpler.
- We are lacking in IP (intellectual property), but we have a lot of YP (youth property). We have to bring them on a single plane.
- Trying to facilitate free patent filing. Today we are reducing patent fee by 80 per cent.
- We are planning relaxed norms of public procurement for startups.
- There are ways to close doors to the new ideas. We want to open them.
- There is no exit plan for startups. We are making faster exits for startups because failures shouldn’t stop you forever. One who runs away from water cannot learn to swim.
- We are bringing a bill in Parliament to let startups can exit 90 days.
- I urge the youth to send the message to those holding up work in Parliament on Twitter and Facebook.
- Rs. 10,000 crore corpus fund for startups.
- A credit guarantee fund for startups.
- Tax exemption on capital gains.
- When someone invests their own wealth, they will be exempted from capital gains tax. Three-year tax exemption for startups.
- We are trying to increase participation of women in startups.
- Tax exemption on investments above fair market value.
- We are starting the Atal Innovation Mission to give an impetus to innovation and encourage the talent among our people.
- Core innovation programmes in 5 lakh schools.
- A startup fest should be started.