Outlined the definition of startup
+ Entity type: Incorporated or registered as a private limited, LLP, registered partnership firm in India for not prior to five years
+ Turnover: within INR 25 crore in each preceding financial year,
+ Work type: working towards innovation, development, deployment or commercialization of new products, processes or services
+ Driven by: technology or intellectual property.
Pre conditions for falling under the above definition:
+ not formed by splitting up, or reconstruction, of a business already in existence.
+ Certification from the Inter-Ministerial Board to be eligible for the tax benefits
+ Receipt of recommendation letter from a recognized incubator cell or be recognized by the Government of India or should be funded by recognized funds.
Benefits of being a Start Up
a. Income Tax exemption for a period of 3 years - The profits of startups will be exempted from income tax for a period of 3 years only if the company has not distributed any dividend.
b. Capital Gains exemption
+ Capital gains on any earlier investment to be exempt if such capital gains are re- invested in the Funds of Funds recognized by the Government.
+ Further, existing capital gains exemption for investment in newly formed manufacturing Micro, Small and Medium Enterprises (MSMEs) by individuals shall be extended to all Startups.
+ For Startups, investment in computer or computer software (used in core business activity) to qualify as purchase of "new assets"
c. Tax exemption on investments above FMV
Since it is often difficult to determine the FMV of startups, being only at a development stage, in case investment by incubators in a startup exceeds its FMV, excess amount will not be chargeable to tax as "income from other sources".
d. Lower Compliance:
To enable the startups to focus on their core business activities and keep compliance cost low, various compliances will be simplified and made flexible by proposing self-certification.
e. Patent filing - Made easy and economical
It is proposed to fast-track the startup patent applications, offer a rebate of 80% on patent filing application, set up a panel of facilitators to assist in filing IP applications for which government will bear facilitation cost, etc.
f. Relaxed norms of bidding
In order to enable startups to participate equally with experienced players of the economy, government will exempt startups (in manufacturing sector) from the criteria of "prior experience/ turnover" without any relaxation in quality standards.
g. Faster exit for startups
For enabling startups to easily wind up their business operations, an Insolvency and Bankruptcy Bill, 2015 has already been tabled in the Lok Sabha in December 2015. This bill has provisions for the fast track and voluntary closure of businesses.
h. Other initiatives
+ Credit guarantee fund for startups which would help flow of venture debt from the banking system to start-ups by standing guarantee against risks.
+ Startup fests to enable startups to effectively communicate and collaborate with fellow startups, investors, industry and other stakeholders to showcase their ideas, work such as product launches, etc.
+ Startup India Hub that will enable startups to achieve their full potential by providing guidance in various fields, financial support and access to knowledge hub.
+ Rolling-out of Mobile App and Portal to ensure that startups are well aware of various processes and to provide them an interactive platform to liaison and coordinate with the various government and regulatory institutions.
+ Corpus fund of INR 10,000 crores to provide funding support for development and growth of innovation driven startups.
+ Other initiatives and programs have been announced to boost the growth of startups such as Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization (SETU) Program, building Innovation Centres at National Institutes, set up of Research Parks, innovation focused programs to be launched for students; an "Incubator Grand Challenge" exercise shall be carried out, wherein early stage startups will be identified and will also be supported across various phases of their journey.