11keyincentivesproposedforstartups

January20,2016

11keyincentivesproposedforstartups
1.WhatisStartup
Startupshallmeananentity:
a)IncorporatedorregisteredinIndianotpriortofiveyears,withannualturnovernotexceedingRs.25croreinanyprecedingfinancial
year
b)Workingtowardsinnovation,development,deploymentorcommercializationofnewproducts,processesorservicesdrivenby
technologyorintellectualproperty.
Note:Suchentityshouldnotbeformedbysplittingup,orreconstruction,ofabusinessalreadyinexistence.Furthertheentityshallceaseto
beaStartupifitsturnoverforthepreviousfinancialyearshasexceededRs.25croreorithascompleted5yearsfromthedateof
incorporation/registration.
2.EligiblebusinessesforStartup
Abusinesswhichaimstodevelopandcommercialize:
a)Anewproductorserviceorprocessor
b)Asignificantlyimprovedexistingproductorserviceorprocessthatwillcreateoraddvalueforcustomersorworkflow.
Howeverthemereactofdevelopingproductsorservicesorprocesseswhichdonothavepotentialforcommercializationorundifferentiated
productsorservicesorprocessesorproductsorservicesorprocesseswithnoorlimitedincrementalvalueforcustomersorworkflowwould
notbeconsideredaseligiblebusiness.
3.HowtogetrecognizedasaStartup?
TheStartupshouldbe:
Supportedbyarecommendation(withregardtoinnovativenatureofbusiness),inaformatspecifiedbyDIPP,fromanIncubator
establishedinapostgraduatecollegeinIndiaor
Supportedbyanincubatorwhichisfunded(inrelationtotheproject)fromGovt.aspartofanyspecifiedschemetopromote
innovationor
Supportedbyarecommendation(withregardtoinnovativenatureofbusiness),inaformatspecifiedbyDIPP,fromanIncubator
recognizedbyGovernmentor
FundedbyanIncubationFund/AngelFund/PrivateEquityFund/Accelerator/AngelNetworkdulyregisteredwithSEBI*thatendorses
innovativenatureofthebusinessor
FundedbyGovt.aspartofanyspecifiedschemetopromoteinnovationor
HaveapatentgrantedbytheIndianPatentandTrademarkOfficeinareasaffiliatedwiththenatureofbusinessbeingpromoted.

4.KeyincentivesforStartup
StartupIndiaisanovelschemeoftheGovernmentofIndiasoastobuildastrongecosystemforstartups.Thisinitiativewilldrive
sustainablegrowthandgeneratelargescaleemploymentopportunitiesinthecountry.TheGovernmenthasannouncedActionplansto
addressesallaspectsoftheStartupecosystem.Keyincentivesproposedunderthisstartupschemeareasunder:
1.SelfCertification:Startupswouldbeallowedselfcertificationofcomplianceswithcertainlabourlawsandenvironmentlawssoasto
reducetheregulatoryburden.Furtherincaseofthelabourlaws,noinspectionswillbeconductedforinitialperiodof3years.
2.Patentregistrationatlowercost:PatentapplicationsofStartupsshallbefasttrackedforexaminationanddisposal,sothattheycan
realizethevalueoftheirIPRattheearliestpossible.APaneloffacilitatorswillbeempanelledtoassistinfilingofIPapplications.The
GovernmentshallbeartheentirefeesofthefacilitatorsandtheStartupshallbearthecostofonlystatutoryfees.Further,Startupsshallbe
provided80%rebateinfilingofpatentsvisvisothercompanies.
3.MobileAppfortracking:TheGovernmentofIndiashallprovidemobileappfor:
a)RegisteringStartupswithrelevantagenciesofGovernment.
b)Trackingthestatusofregistrationapplicationanddownloadingoftheregistrationcertificate.
c)Filingforcompliancesandobtaininginformationonvariousclearancesandapprovalrequired.
d)ApplyingforvariousschemesbeingundertakenundertheStartupIndiaActionPlan.
TheMobileAppshallbemadeavailablefromApril1,2016onallleadingmobile/smartdevices'platforms.
4.FasterexitforStartups:IntermsoftheInsolvencyandBankruptcyBill2015,Startupswithsimpledebtstructuresorthosemeeting
suchcriteriaasmaybespecifiedmaybewoundupwithinaperiodof90daysfrommakingofanapplicationforwindinguponafasttrack
basis.
5.Exemptionifcapitalgainisinvestedinstartups:ExemptionshallbegiveninrespectofacapitalgainwhichisinvestedintheStart
upecosystem.
6.Taxexemptionfor3years:ProfitsofStartupinitiativesshallbeexemptedfromincometaxforaperiodof3years.Theexemption
shallbeavailablesubjecttonondistributionofdividendbytheStartup.AStartupshallbeeligiblefortaxbenefitsonlyafterithas
obtainedcertificationfromtheInterMinisterialBoard,setupforsuchpurpose.
7.InvestmentsinstartupsaboveFMVisnottaxable:ConsiderationreceivedbyaStartupsforissuingsharesatapricehigherthanits
FairMarketValuewouldnotbetaxableasincomefromotherSourcesinthehandsofrecipientundersection56(2)(viib)oftheIncometax

Act.
8.StartupIndiaHub:TheGovernmenthasannouncedlaunchofStartupIndiaHubtocreatesinglepointofcontactfortheentireStart
upecosystemandenableknowledgeexchangeandaccesstofunding.The"StartupIndiaHub"willbeakeystakeholderinthisvibrant
ecosystemandwill:
a)WorkinahubandspokemodelandcollaboratewithCentral&StateGovernmentsofIndianandforeignVCs,angelnetworks,banks,
incubators,legalpartners,consultants,universitiesandR&Dinstitutions.
b)AssistStartupsthroughtheirlifecyclewithspecificfocusonimportantaspectslikeobtainingfinancing,feasibilitytesting,business
structuringadvisory,andenhancementofmarketingskills,technologycommercializationandmanagementevaluation.
c)OrganizementorshipprogramsincollaborationwithGovernmentorganizations,incubationcenters,educationalinstitutionsandprivate
organizationswhoaspiretofosterinnovation.
9.RelaxationinPublictender:TypicallywheneveratenderisfloatedbyaGovernmententityorbyaPSU,averyofteneligibility
conditionspecifieseither"priorexperience/turnover".Suchastipulationprohibits/impedesStartupsfromparticipatinginsuchtenders.In
ordertopromoteStartups,GovernmentshallexemptStartups(inthemanufacturingsector)fromthecriteriaof"priorexperience/turnover"
forfilingofpublictenders.
10.CreatingcorpusofRs.10,000crore:GovernmentwillsetupafundwithaninitialcorpusofRs.2,500croreandatotalcorpusofRs.
10,000croreoveraperiod4years(i.e.Rs.2,500croreperyear).TheFundwillbeinthenatureoffundoffunds,whichmeansthatitwill
notinvestdirectlyintoStartups,butshallparticipateinthecapitalofSEBIregisteredVentureFunds.
11.CreditGuaranteefund:DebtfundingtoStartupsisalsoperceivedashighriskareaandtoencourageBanksandotherLendersto
provideVentureDebtstoStartups,CreditguaranteemechanismthroughNationalCreditGuaranteeTrustCompany(NCGTC)/SIDBIis
beingenvisagedwithabudgetaryCorpusofINR500croreperyearforthenextfouryears.
*DIPP(DepartmentofIndustrialPolicyandPromotion)maypublisha'negative'listoffundswhicharenoteligibleforthisinitiative.
*InfographiconKeyIncentives