In this article, Anubhav Pandey deals with startup India scheme.

India is evolving and is expanding its horizon regarding business opportunities. The startup is the buzzword of the decade. Furthermore, with the support of governmental bodies, the ease of establishing and running a startup has increased drastically. In this article, shall take a look at the unique benefits provided by the governmental schemes to registered startup in India.

Definition of a startup

Startup means an entity, incorporated or registered in India not prior to five years. Also, the annual turnover of the startup should not exceed INR 25 crore in any preceding financial year.

A startup should be working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

To avail the schemes provided by the government, a startup must be registered under any of the following three heads.

  • Private Limited Company (under The Companies Act, 2013) or
  • Registered Partnership Firm (under The Indian Partnership Act, 1932) or
  • Limited Liability Partnership (under The Limited Liability Partnership Act, 2008)

Proposed schemes and incentives

Compliance Regime based on Self-Certification

Every startup needs to comply with various labor and environmental laws and regulations. Also, the formalities requiring conformity of these laws are time-consuming. Therefore, to make compliance for Startup friendly and flexible, simplifications are introduced by self-certification scheme.

By self-certification, a startup will comply itself to an inclusive nine labor and environmental laws. Also, no inspection regarding these laws will be conducted till a time period of three years.

The nine laws will include the following.

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

Environmental 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

Startup India Hub

  • A program by the government of India, to provide a support system to all the entrepreneurs. “Startup India Hub,” helps to increase the gap between  Indian and foreign VCs, angel networks, banks, incubators, legal partners, consultants, universities and R&D institutions. Thereby, making a conducive environment for startups to grow.
  • Also, Startup India Hub will assist Startups through their lifecycle with specific focus on important aspects such as obtaining financing, feasibility testing, business structuring advisory, enhancement of marketing skills, technology commercialization and management evaluation.
  • Finally, startup India Hub will organize mentorship programs in collaboration with government organizations, incubation centers, educational institutions and private organizations who aspire to foster innovation

Startup Intellectual Property Protection Scheme (SIPP)

With the SIPP scheme, the registered startups will face no trouble in patenting procedure, design procedure, and trademark procedure.

Government to bear facilitation cost: Under this scheme, the Central Government shall bear the entire fees of the facilitators for any number of patents, trademarks or designs that a Startup may file, and the Startups shall bear the cost of only the statutory fees payable.

Ownership of the IPR under the SIPP scheme: The startup will have sole ownership of the patent, and no governmental authority will claim its right over the intellectual property.

Rebate on the filing of application: An 80% rebate in the filing of patents vis-a-vis other companies. This will help them pare costs in the crucial formative years.

  • To read more on the SIPP scheme, click the following click. SIPP
  • List of facilitators for patent. Click here.
  • List of facilitators for trademark. Click here.

Relaxed Norms of Public Procurement for Startups

Whenever a tender is floated by a Government entity or by a PSU, eligibility condition specifies either prior experience or prior turnover. Such a stipulation prohibits/ impedes Startups from participating in such tenders.

To promote Startups, Government shall exempt Startups (in the manufacturing sector) from the criteria of “prior experience/ turnover” without any relaxation in quality standards or technical parameters.

Tax Exemption to Startups for 3 years

With a view to stimulate the development of Startups in India and provide them a competitive platform, the government of India has exempted the Startup from paying income-tax on their profit 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.

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

Startups and relaxation under, Foreign Exchange Management (Foreign Currency Accounts by a person resident in India) Regulations, 2015

  • In line with the Government of India’s startup initiative, an Indian startup, having an overseas subsidiary, may open a foreign currency account with a bank outside India for the purpose of crediting to the account the foreign exchange earnings out of exports/sales made by the said startup or its overseas subsidiary.
  • The balances held in such accounts, to the extent they represent exports from India, shall be repatriated to India within the period prescribed for the realization of exports, in Foreign Exchange Management (Export of Goods and Services) Regulations, 2015 dated January 12, 2016, as amended from time to time.
  • Also, payments received in foreign exchange by an Indian startup arising out of sales/ export made by the startup or its overseas subsidiaries will be a permissible credit to the Exchange Earners Foreign Currency (EEFC) account maintained in India by the startup.

Relaxation provided under Apprentices Act, 1961

The Apprentices Act, 1962 has been amended to provide for a better harmonious environment for startups in India. An establishment has been allowed for selection of trade and self-regulation of engagement of apprentices in a band of a minimum of 2.5% and to a maximum of 10% of the total strength of establishment including contractual worker.

An establishment under Apprenticeship Rule, 1992 provides for routine inspection by an officer. Startups have been provided relaxation under this rule too. For one year since its functioning, no startup will be inspected, and for this, they have to give a self-declaration of the same.

RBI guidelines on ECB for startups

  • The Reserve Bank in the Fourth Bi-monthly Monetary Policy Statement for the year 2016-17 released on October 04, 2016, permitted Startup enterprises to access loans under ECB framework.
  • The borrowing should be denominated in any freely convertible currency or in Indian Rupees (INR) or a combination. In the case of borrowing in INR, the foreign currency – INR conversion will be at the market rate as on the date of the agreement.
  • The borrowing per Startup will be limited to USD 3 million or equivalent per financial year either in INR or any convertible foreign currency or a combination of both.
  • Conversion into equity is freely permitted, subject to Regulations applicable for foreign investment in Startups.
  • The overseas lender, in the case of INR, denominated ECB, will be eligible to hedge its INR exposure through permitted derivative products with AD Category – I banks in India.
  • Who are eligible to be a lender under the guidelines
  • Lender/investor shall be a resident of a country who is either a member of Financial Action Task Force (FATF) or a member of an FATF-Style Regional Bodies.

Lenders shall not be from a country identified in the public statement of the FATF as:

  • A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply, or
  • A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies

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