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. It is an attempt to galvanise entrepreneurship across the country, through income tax benefits, easy bank financing, and lesser compliance burden.
What is a startup ? – Legal Definition
Generally speaking, a startup is a young company that is just beginning to develop. But its legal definition is different and is subject to be updated from time to time, and can vary for different sectors.
Legally speaking, a private limited company is a startup for upto 7 years from the date of its incorporation if its turnover is below 25 crore Rupees in any financial year. For biotechnology companies, this period is 10 years from the date of incorporation.
Benefits for startups under the Startup India Action Plan:
Lesser Compliance Burden
Startups are allowed to self-certify their compliance with the labour and environment laws. They are also exempted from inspection under labour laws for upto 3 years, except on receipt of a credible complaint of violation.
Funding Support and Tax exemption
Startups are exempted from paying income tax on profits for three years.
Fund of Funds for Startups (FFS) has been set up under SIDBI. The Fund will be used to contribute to SEBI registered venture funds which invest in startups. To encourage growth of corpus of this fund, the government has given tax exemption on Capital Gains to persons who invest such capital gains in the Fund of Funds.
There is also a Credit Guarantee Scheme which facilitates collateral free loan for startups.
Only Recognised Startups get the incentives
To obtain tax benefits, a startup is required to be certified as an eligible business from the Inter-Ministerial Board of Certification (IMB) setup by DIPP, and representatives from Department of Science and Technology, Department of Biotechnology, Ministry of Electronics and Information Technology.
The Startup India scheme comes under the purview of Department for Promotion of Industry and Industrial Trade (DIPP), Ministry of Commerce and Industry.
April 2018: Reports show a huge gap in entities recognised and those receiving funds, suggesting that the disbursal of funds to startups has been very slow so far.
More related information:
Angel investment – It is an early stage investment in startup by a person (individual or company).
Venture Capital – It is invested by firms in a startup in early age.
Bootstrapping – It refers to self funding of a startup by its founders.
Business incubators and business accelerators are organisations that help new startups by offering them services such as management training or office space.