Every individual with a path-breaking idea wishes to turn it into a reality. Unfortunately, they do not possess the knowledge of the pre-requisites to conceptualise it. This is where the Start-up India Initiative comes into picture.
The Startup India Initiative is a flagship initiative of the Government of India, intending to build a strong eco-system for nurturing startups and innovations in the country. This will enable a sustainable economic growth and generation of large scale employment opportunities in India.
How can a start-up benefit from this initiative?
A start-up can benefit from this initiative in the following ways:
1. One stop Registration
To commence operations, a start-up would need to get themselves registered with the relevant regulatory authorities. They might face uncertainty regarding the exact procedure to be followed and the list of necessary documentation. To help an organisation with this, a start-up can download the Government of India (GoI) app for android phones here.
The mobile app will help the start-up in the following ways:
- The app will register your start-up with the relevant agencies of the government. It will provide you with a simple form for the same.
- The start-up will be able to track the status of the registration application and download the registration certificate at any given time. The mobile app will provide a digital version of the final registration certificate which can be easily downloaded.
- The app will help the start-up file for compliances and obtain information on various clearances, approvals and registrations required.
- The app provides a collaborative platform with a national network of stakeholders (venture funds, incubators, academia and mentors) of the start-up ecosystem.
- The app will help you apply for various schemes that are being undertaken under the Start-up India Action Plan.
2. Self-certification for Compliance
In order to make it easier for start-ups to be compliant to all applicable laws and regulation, the government has made a few simplifications. While other agencies certify normal companies for their compliance, start-ups can self-certify themselves.
They can do so through the start-up mobile app with the below mentioned nine labour and environment laws.
The labour laws:
- The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
- The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
- The Payment of Gratuity Act, 1972
- The Contract Labour (Regulation and Abolition) Act, 1970
- The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
- The Employees’ State Insurance Act, 1948
The environment laws:
- The Water (Prevention & Control of Pollution) Act, 1974
- The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
- The Air (Prevention & Control of Pollution) Act, 1981
In case of labour laws, the government will not conduct any inspections for a period of 3 years. The start-up will be inspected only on receipt of credible and verifiable complaint of violation (filed by an officer who’s at least one level senior to the inspection officer).
- If a start-up falls under the “white category” (as defined by the Central Pollution Control Board), they will be able to self-certify compliance and only then random checks would be carried out.
3. Start-up India Hub
The government understands that many start-ups do not reach their full potential due to limited guidance and access to financial assistance. Therefore, it has set-up a platform called ‘Start-up India Hub’ where start-ups can easily collaborate with key stakeholders, receive financial assistance, and guidance under mentorship programmes.
The Start–up India Hub will provide the following support and assistance:
- The Hub will work in a Hub & Spoke model and help a start-up collaborate with Central and State governments, Indian and foreign venture capitalists (VCs), Angel networks, Banks, Incubators, Legal partners, Consultants, Universities, and R&D institutions.
- It will assist a start-up in obtaining financing, conducting feasibility testing and providing advisory services for business structuring.
- The Hub will help you enhance your marketing skills, technology commercialization, and management evaluation.
- It will organise mentorship programmes in collaboration with government organisations, incubation centres, educational institutions and private organizations who aspire to foster innovation.
The Hub will be operational from 10:00 AM to 5:30 PM on working days and can be reached via the toll free number: 1800115565 or the email ID: firstname.lastname@example.org
Register to the Hub online by clicking, here
4. Relaxed norms of public procurement for Start-ups
In order to provide an equal opportunity to start-ups in the manufacturing sector, the government has relaxed the norms for public procurement. The eligibility criteria for a Normal Company to bid for the tenders floated by the government entity or a public sector undertaking (PSU)requires ‘prior experience’ or ‘prior turnover’.
Therefore, in order to help start-ups, the government has exempted them from the criteria of ‘prior experience/turnover’. However, there will be no relaxation in quality standards or technical parameters. A start-up will have to demonstrate the necessary capabilities to execute the project as per requirements and they should have their manufacturing facility in India.
5. Faster exit for Start-ups
Even though start-ups are highly innovative in nature, they have lower success rates. The government understands that when a start-up fails, it is critical to reallocate capital and resources to more productive avenues.
To tackle this critical situation, the government has proposed a swift and simple process that start-ups can follow to cease their operations. This initiative helps first-time entrepreneurs to experiment with innovative ideas without having to worry about facing a long-drawn exit process where their capital tends to be interminably stuck.
As per the Insolvency and Bankruptcy Bill 2015 (IBB), if a start-up has a simple debt structure or has met all the specified criteria, they can discontinue their operations within a period of 90 days from the time of submitting the application.
In such instances, the government appoints an insolvency professional who would be in charge of the start-up in place of the promoters and management. The professional will take care of liquidating the start-up’s assets and pay its creditors within six months of their appointment. This process respects the concept of limited liability.
6. Credit guarantee fund for start-ups
The major concern for most start-ups is receiving funding support for their business ventures. The government understands that in order to encourage experimentation among budding entrepreneurs, they need to provide a type of credit guarantee comfort.
The Department of Industrial Policy and Promotion (DIPP) are therefore in the process of setting up a corpus of ₹2,000 crore that will provide 80% risk cover and hence enable banks and financial institutions to provide collateral free credit to start-ups. The government has also envisaged a credit mechanism scheme through National Credit Guarantee Trust Company (NCGTC) and SIDBI with a budgetary corpus of ₹500 crore for the next four years.
7. Providing funding support through a Fund of Funds with a corpus of ₹10,000 crore
In the initial stages of the establishment of a start-up, it is highly difficult for them to gain financial assistance. This is mainly because the start-up might lack collateral or not have any existing cash flow. Also as the probability of a start-up failing is really high which make them an unattractive investment.
Therefore, the government has set up a fund with an initial corpus of ₹2,500 crore and a total corpus of ₹10,000 crore over a period of four years. This fund would be in the nature of ‘Fund of Funds’ which will be managed by SIDBI. The fund will invest in SEBI registered Alternative Investment Funds (AIFs) which, in turn, will invest in start-ups.
This fund would help a start-up attract private capital in the form of equity, quasi-equity, soft loans and other risk capital.
The key highlights of the ‘Fund of Funds’ are as follows:
- Life Insurance Corporation (LIC) of India will be a co-investor in the ‘Fund of Funds’
- A wide range of sectors will be covered under this fund. The sectors covered will include manufacturing, agriculture, health care and education
- A contribution of up to 50% will be made by the ‘Fund of Funds’ to the daughter fund. In order to be eligible for contribution by the ‘Fund of Funds’ the daughter fund should have already raised 50% or more of the stated fund
8. Tax exemption on capital gains
Investing in a start-up during its initial stages is very risky, hence the government has come up with various incentives in order to attract investors. Investors can now avail exemption on capital gains, if the gains are invested in the ‘Fund of Funds’ recognised by the government.
This will in turn increase the funds available to various VCs/AIFs for investment in start-ups. The government has also extended the existing capital gain tax-exemption for investment in newly formed start-ups.
In order to avail the exemption, the entity needs to purchase new assets with the capital gains received. Investment in computer or computer software will also be considered as purchase of new assets.
9. Tax exemption to Start-ups for 3 years
The government is aware of start-ups making significant capital investments in order to embrace ever-changing technology, combat rising competition, and overcome the challenges of running a start-up.
In order to facilitate the growth of start-ups and provide them with a competitive edge, they will be exempted from paying income tax for a period of 3 years. Start-ups that are incorporated between April 1, 2016 and March 31, 2019 will be eligible for the exemption.
To avail this benefit, the start-up must also get a Certificate of Eligibility from the Inter-Ministerial Board. Start-ups should not distribute dividends in order to avail the exemption.
10. Tax exemptions on investments above Fair Market Value
Under the Income Tax Act, 1961, any consideration received for the issue of shares that’s above the ‘Fair Market Value’ (FMV) of such shares, the excess consideration received is taxable under ‘Income from Other Sources’. However, when it comes to start-ups, it becomes difficult to determine the FMV of these shares. The FMV generally tends to be significantly lower than the value at which the capital investment was made.
Under the Start-up India plan, start-ups are exempted from paying this tax. Therefore, investments can be made by venture capital funds and incubators without being taxed.
11. Organising start-up fest for showcasing innovation and providing a collaboration platform
In order for a start-up to grow, it is necessary to have regular communication and collaboration within the start-up community, i.e., both national as well as international. However, an effective start-up ecosystem is dependent upon the participation of academia, investors, industry and other stakeholders.
In order to strengthen the start-up ecosystem in India, the Government has introduced start-up fests at the national and international level.
These fests will help a start-up showcase their work in front of a larger audience comprising of potential investors, mentors, and fellow start-ups. There will be one fest held at the national level on an annual basis. This will help all the stakeholders of a start-up ecosystem to come together at one platform.
There will also be one fest held at the international level on an annual basis. This will be held in an international city that is known for its start-up ecosystem. The fest will be full of activities and interactive sessions.
It will have exhibitions and product launches, where start-ups can pitch their ideas. It includes:
- Mentoring sessions
- Curated start-up walks
- Talks by disruptive innovators
- Competitions such as Hackathon, Makerspace, etc.
- Announcements of rewards and recognitions
- Panels and conferences with industry leaders, etc.
12. Building innovation centres at National Institutes
The government understands there’s a need to increase the incubation and R&D efforts in the country. It
Under this initiative, the following benefits will be provided:
- The government shall set-up 13 start-up centres
- An annual funding support of ₹50 lakh will be provided for 3 years in order to encourage student driven start-ups from the host institute. The funds will be provided by the Department of Science (50%) and the Ministry of Human Resource Development (50%)
- The government shall set-up or scale-up 18 Technology Business Incubators (TBI) at NITs/IITs/IIMs etc
The start-up centres and TBIs will be set-up at the following locations –
|Start-up Centres||Technology Business Incubators|
|RGIIM Shillong||NIT Goa||MANIT Bhopal||IISER Bhopal||NIT Warangal|
|NIT Delhi||NIT Agartala||NIT Rourkela||IIM Rohtak||MNIT Jaipur|
|MNIT Allahabad||NIT Silchar||NIT Jalandhar||IIT Mandi||NIT Tiruchirappalli|
|VNIT Nagpur||IIT Bhubaneswar||IIM Udaipur||IISER Mohali||IIT Patna|
|IITDM Kancheepuram||NIT Patna||NIT Calicut||IIT Roorkee|
|PDPM – IITDM Jabalpur||NIT Arunachal Pradesh||IIT Ropar||IIM Kozhikode|
|ABVIIITM Gwalior||IISER Thiruvananthapuram||IIM Raipur|
13. Setting up of seven new research parks modelled at IIT Madras
In order to promote innovation through incubation and joint R&D efforts between academia and industry, the government will set up seven new Research Parks. These will be modelled based on the existing Research Park at IIT Madras. Each Research Park will require an initial investment of ₹100 crore.
The government plans to set-up Research Parks at the following locations –
- IIT Guwahati
- Hyderabad IIT
- IIT Kanpur
- IISc Bengaluru
- IIT Kharagpur
- Gandhinagar IIT
- IIT Delhi
IIT Madras Research Park tries to enable companies who want to focus on research to set up a base in the Park. These companies can make use of the expertise provided at IIT Madras. The Research Park breaks down the traditional, artificial barriers of innovation through its connectivity and collaborative interaction.
This will help the industry to create, integrate and apply advancements in knowledge. It leverages the best practices from successful Research Parks such as those at Stanford, MIT, and Cambridge.
The guiding principles behind the park assist start-ups:
- To create a collaborative environment between the industry and academia through joint research, projects, and consulting assignments
- Create a self-sustaining and technologically fertile environment
- To encourage and enable R&D activities and start-ups which are aligned to potential needs of the industry
- Provide world class infrastructure for R&D activities and incubation
- To enable development of high quality personnel and motivating professional growth for researchers in companies through part time Masters and PhD Programs
14. Harnessing private sector expertise for incubator setup
The government is aware about the lack of incubation facilities across India.
The incubation facilities include physical infrastructure, provision of mentorship support, access to networks, and access to markets. The government can provide the capital required for setting up the physical infrastructure. However, the technical skills required for operating on an incubator are also pivotal. For this, expertise from the private sector can be sought.
Thus considering all of this, the government proposes to:
- Set up 35 new incubators in existing institutions. The Central Government shall provide 40% of funding support (up to ₹10 crore), the state government shall also provide 40% and the remaining 20% will be funded and managed by the private sector for the establishment of new incubators.
- Set up 35 new private sector incubators. The Central Government shall provide a grant of 50% (up to ₹10 crore) for the establishment of new incubators. The incubator shall be managed and operated by the private sector.
NITI Aayog will provide the funding for setting up of incubators as a part of the Atal Innovation Mission.
The following departments and agencies will be the participants for setting up of new incubators –
- Department of Science and Technology
- Department of Electronics and Information Technology
- Ministry of Micro, Small, and Medium Enterprises
- Department of Higher Education
- Department of Industrial Policy and Promotion
- NITI Aayog
- Department of Biotechnology
The above mentioned departments/agencies would enter into a standard MoU with identified private sector players for creation of academia-industry tie-ups in order to nurture innovations in academic institutions.
15. Launching of innovation focused programs for students
The government understands the importance of promoting research and innovation among young students. It has therefore implemented the following measures:
- Innovation core:
This programme will target school kids and plans to reach out to 10 lakh innovations from five lakh schools. Out of these 10 lakh innovations, one lakh innovations will be targeted and the top 10,000 innovations will be provided with prototyping support. Out of these 10,000 innovations, 100 will be shortlisted and showcased at the Annual Festival of Innovations in the Rashtrapati Bhavan.
- National Initiative for Developing and Harnessing Innovations (NIDHI):
This programme will help start-ups with initial funding. It aims to support 20 student-driven start-ups each year. The start-ups would be selected through a national-level competition.
The selected start-ups would receive a grant/award of up to ₹10 lakh.
The eligibility criteria to receive this funding is as follows:
- The programme would only support student-driven start-ups. A student cannot be a part of more than one start-up
- The start-up should be a registered company/LLP
- It should be a project supported by the Innovation and Entrepreneurship Development Centre (IEDC)/New-Gen IEDC in the previous 5 years
- The projects should be nominated by IEDC/New-Gen IDEC
- The start-up should be the sole owner of the IP, the host institution should be transferred or forgone their rights on the IP
The funds would be disbursed to the start-up as per the following milestone: 70% on selection and 30% on achievement of milestone/pre-defined deliverables.
Uchhattar Avishkar Yojana
This scheme was set-up by the Ministry of Human Resource Development (MHRD) and the Department of Science and Technology (DST). IT provides financial assistance to IIT students for undertaking high quality research.
They’ve earmarked Rs.250.00 crore per annum for this scheme.
The funding towards this research will be 50.00 per cent contribution from MHRD, 25.00 per cent from DST and remaining 25.00 per cent from the industry.
What is the eligible criteria to be a start-up?
The eligibility criteria to be a start-up is as follows:
- Firm is no older than five years
- Annual turnover should not exceed ₹25 Cr
- Work is related to innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property
- Entity should not have been formed by splitting up, or reconstruction of a business that was already in existence
How can an aspiring company apply to be recognised as a start-up?
An aspiring company can apply to be recognised as a start-up by clicking here.
Source : SME First Post
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