What is Startup India?
‘Startup India Standup India’ is an initiative by the Government of India to develop an ecosystem that promotes entrepreneurs. This scheme was launched with an aim to encourage innovation, entrepreneurship and give positive boost to social and economic aspect in our country. Prime Minister, Narendra Modi first announced Startup India scheme on 15th August, 2015 and the same was inaugurated on 16th January, 2016 by Finance Minister Arun Jaitley whereas, the Standup India scheme was inaugurated on 5th April 2016. To achieve this objective, government has created Startup India action plan that is based on three things:
- Simplification and handholding
- Funding support and incentives
- Industry-Academia Partnership and Incubation
As per recent statistics from Start up India, 1,70,993 learning and development modules and 2,39,311 startup India hubs are registered. More than 5000 Startups has been recognised till 30th March 2018.
Startups funded by government through Alternative Investment Funds (AIFs)
Hundreds of Startups are funded by government via SIDBI that is designated for the disbursement of the Funds. Here is the list of 5 such Startups.
- Bizongo
It was founded in 2014 and has raised a funding of $3 Million in Series A round from IDG Ventures and Accel Partners. It helps companies cater to their packaging needs.
- Boxx.ai
It was founded in 2016 and has raised $500K by Unicorn India Ventures. This product will solve critical analytics problems at affordable costs using artificial intelligence.
- Gingercrush
It was founded in 2015 and has raised about $1 Million in Pre-Series A round which was led by Saha Fund. It is an on-demand retail that allows customers to customise products such as mugs, t-shirts, mobile covers, etc.
- Noticeboard
It was founded in 2016 and has raised funding of $1.2 Million by Stellaris Venture Partners and other angel investors. This platform is developed to efficiently transform information between employees.
- Sequretek
It was founded in 2013 and has raised undisclosed amount from Unicorn India Ventures and GVFL in Series A round.
Startup Qualification
If you are planning to register a Startup, you must know which businesses are considered under Startup India Standup India scheme. Government will consider your business as a Startup only for 7 years from the date of incorporation and for 10 years in case of biotechnology sector, as per legal guidelines. To qualify as a Startup, business must satisfy following conditions:
- It should incorporate as a company under Companies Act 2013 or it should be registered as a partnership firm under the Partnership Act or it should be registered as a limited liability partnership under the Limited Liability Partnership Act.
- It should not earn an annual turnover of more than Rs.25 crore in any of the financial year since the day of incorporation.
- It should not be constituted as a result of demerger or acquisition with an existing company.
- Its main aim should be to introduce innovative ideas, develop or improve existing products.
- It should be a business model with medium scale that has the potential to create wealth and generate employment.
Apart from the main legal considerations every state has its own Startup policies which you need to comply with, for Startup India registration.
[If you want to incorporate your company, it is advisable to obtain Private Limited Company Registration as it adds on numerous benefits to your company]
Startup India Benefits
Tax benefits
You can enjoy following tax exemptions if your Startup pass the Startup India scheme eligibility process: own an eligible Startup under this scheme:
- On long-term capital gains
First you need to know what is long-term capital gain? Long-term capital gain arises from the sale of an asset that has been owned by you for more than 12 months at the time of sale. You have to pay tax on such long-term capital gain and to save tax on such gain, you can invest the profit in full or in part, in the funds that are notified by the government within 6 months from the date of sale of asset. You can invest up to Rs.50 lakhs and it should remain invested for the period of 3 years or else your exemption will be revoked.
- 3 year tax holiday
If your annual turnover does not exceed Rs.25 crore for 3 years in the block of seven years, than you are eligible to get 100% tax rebate on the profit earned for these 3 financial years. This benefit is offered by the government so that Startups have enough working capital to meet their requirements in initial years of setting up.
- On investments which are above the fair market value
In simple words, fair market value is the price of the investment if sold in the open market. If incubator, angel investor, family or any other investor who is not registered under venture capital funding has invested in your Startup at a value more than the fair market value then tax is exempt on any such investment.
- To individuals or HUF on investment of long-term capital gain in the shares of eligible Startups.
If individual or HUF sell a residential property at profit then you are required to pay tax on such long-term capital gain earned. So, if any individual or HUF sells a residential property and invest its long-term capital gain to buy 50% or more equity shares in any eligible Startup, then tax on any such gain will be exempt. Individual or HUF should hold the shares for minimum 5 years to avail such exemption. Also, the tax will be exempt only if you invest your Startup’s money in purchasing an asset and do not transfer it within 5 years. This will boost investment in Startups and helps in their expansion.
- Set-off for the losses carried forward and capital gains are allowed.
If all the shareholders of your Startup who held shares in the company for the financial year in which loss was incurred continue to hold shares for the year in which the loss is carried forward, then carry forward of losses for Startups is allowed.
Self-Certification
To encourage and boost Startups, government has allowed self-certification for at least six labour laws for a period of 5 years and three environment laws namely, The Water Act, 1974; The Water Cess (Amendment) Act, 2003 and The Air Act, 1981. According to the Ministry of Labour, no inspection on Startups will be conducted for the six labour laws for the period of 3 years. The six labour laws are: The Employees’ Provident Fund and Miscellaneous Provisions Act, 1952; The payment of Gratuity Act, 1972; The Inter-State Migrant Workmen Act, 1979; The Contract Labour Act, 1970; The Employees’ State Insurance Act, 1948 and The Building and Other Construction Workers Act, 1996.
Public procurement
Startups which are recognised by DIPP (Department of Industrial Policy and Promotion) are eligible to list themselves as seller on the Government e-Marketplace, the largest e-procurement portal by Government of India. This move is taken to give equal opportunities to Startups and experience entrepreneurs. Startups listed under this can avail following two exemptions:
- Prior experience and prior turnover requirements
- Money deposit requirements
Reduction in costs
To protect intellectual property like patents and trademarks, government is taking various steps. One amongst various steps is fast examination of application for patents at lower fees. Apart from this, government will bear the facilitator fees and Startups will have to bear only the statutory fees. This will result in 80% reduction in the total cost of patent filing, thus reducing the overall expenses for you.
R&D sector
To encourage research and development sector, government has announced set up of seven new research parks that will provide facilities to the Indian Startups which are part of R&D sector.
Apply for tenders
Government usually checks the prior experience and prior turnover of the company before hiring them. But Indian Startups can apply for government tenders without any prior experience or turnover as they are exempted from this criterion.
Selecting the investors
After the introduction of action plan, Startups now have the choice to select investors. This means Startups now have the liberty to choose the investor from the list of venture capitals as per their requirements.
Faster exit
You might want to shut down your Startup because of insufficient funds, lack of resources or any other reason. The exit procedure is very simple, you can close your business within 90 days from the date on which you have sent an application for winding up your business.
How to establish a Startup?
a. Registering as a Startup
Registering as a Startup in India is a very simple process, you just need to follow these steps to register your Startup.
1. Incorporating your business
Your Startup must be registered as a private limited company or limited liability partnership or a partnership firm. For registering your Startup with Registrar of Companies (ROC), you need to follow the normal procedure that normal businesses follow and obtain all the legal certificates such as certificate of incorporation, PAN, DIN and others. You can also incorporate your company electronically by filing SPICe-INC-32 online.
2. Register your Startup on the government website
Once you have registered your business with ROC, your business must be registered as a Startup on government’s online portal i.e., Startup India Portal.
- You have to create an account on the Startup India portal. After that you have to select your country.
- Once you have selected your country, you have to select ‘Startup’ option as you are registering a Startup.
- Now, you have to enter basic information like display name, email, state, city, name of Startup, industry, sector, services and URL of your company for registering a Startup.
- Later, you have to upload your company logo, website, application link and inform whether your DIPP recognised or not.
- After that you have to enter details of your team members like their name, role, photo, LinkedIn URL and Twitter URL.
- You can choose whether you want to upload business documents.
- Now, you have the option to choose with whom you want to connect like investors, other Startups, incubators, accelerator or all of them.
- When done, you can check the terms and conditions box and save your profile.
3. Upload required documents
After you have filled the form, upload the required documents in PDF format only to take forward your application procedure.
4. Availing tax benefits
StartUps are exempted from tax and to avail these benefits they must get a certificate from Inter-Ministerial Board (IMB). So, they need to answer whether they want to avail tax benefits or not.
5. Self-certification
You need to self-certify that you have fulfilled all the conditions to be registered as a Startup.
6. Recognition number
You will receive the certificate of recognition after your documents are verified and if any document is found forged, then fine will be levied. Fine will be 50% of the paid-up capital or Rs.25,000 whichever is higher.
b. Documents and certificates that are required to be furnished while registering a Startup
Following documents need to be submitted along with the form.
- Incorporation certificate
- Brief description about your offering and how it is different from others
- A letter of recommendation/support
The list of valid recommendation is as follows:
A recommendation in the prescribed format from an incubator established in a post-graduate college in India.
- A support letter from any incubator funded by central or state government.
- A recommendation letter in the format prescribed by DIPP from a central government recognized incubator, who acknowledges the innovation of business.
- Any angel investor or private equity fund or accelerator that is registered with SEBI and promotes innovative nature of business can give a letter of funding of at least 20% of equity funding.
- To promote innovation, a letter of funding by the central or state government.
- The areas that are affiliated with the nature of business that is being promoted, patent filled and published in such areas in the journal by the Indian Patent Office.
[When you start a business, Trademarking your brand is essential. If you want to know what is Trademark and how to register for it, read our article How to Register Trademark for your Brand in India]
Startup Funding India
- Self-funding
When you are just starting your business, financing your business with your own funds is a better option as you will face trouble getting funds from other sources because you are a first-time entrepreneur. You can either invest your savings or ask your family or friends to contribute as they will be flexible with interest rates and repayment periods. You can consider this option if your initial investment is not high and can be fulfilled with self-funds.
- Crowdfunding
Crowdfunding is gaining immense popularity these days. In crowdfunding, you take loan or contribution from more than one person. For this, you will have to put details about your business, how are you different from others, goals, strategic plans, funding requirements and few others, on the crowdfunding platform. Anyone can read the details and they can give the money if they like your idea. This method of financing not only generates the funds but also markets the product.
- Angel investment
Those people who have extra funds and are interested to invest in Startups are known as angel investors. They have a group of networks for the screening of the proposal before investing in. As they have invested sufficient funds in your Startup, they have the right to mentor your business and advice whenever they feel the need to. Many companies like Yahoo, Google and others were funded by Angel Investors in their initial days.
- Venture capital
This is the most important way of financing your business as they offer huge funds. They usually monitor and screen the company before investing and invest in those companies where they see huge potential for growth. Along with funds, they also provide mentorship, expert advices, check the status of where company is going and evaluate the present status of company in the industry.
- Business incubators and accelerators
As a Startup recently registered, you are at an early stage in your business and thus, you can consider Business Incubators and Accelerators as your funding option. They are known for funding hundreds of Startups every year. Incubators and accelerators are almost same, they provide training and tools to Startups and also make funds available to them to run their business. They need time commitment from you as a Startup owner and you can make good connections using their platform.
- Bank loans
The first option that comes to your mind for funding is bank. You can avail Startup India loan scheme from banks to fund your requirements and it will also help in setting up of your business. Generally, banks provide two types of loans: working capital loan to meet day-to-day requirements of your business and the other is business loan to set up your business.
- NBFCs
Non-Banking Financial Corporations are the legal organisations which provide banking services but are not registered as banks. If you cannot avail a loan from banks, you can certainly go to NBFCs to avail loan. They offer you loan at lower interest rates and with easy procedure to apply for a loan.
- Government programs
There are Government loans for small business Startup in India. Government has introduced ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA)’ with the initial fund of Rs.20,000 crore that is to be extended to around 10 lakhs SMEs. You need to submit your business plan and after approval of this plan, your loan will be sanctioned. You will receive a MUDRA card, which you can use to pay for your expenses. The other plans launched by the Government of India are 10,000 crore StartUp fund; Bank of Ideas and Innovation program and different state-wise programs such as Maharashtra Centre for Entrepreneurship Development, Rajasthan Startup Fest, Kerala State Self Entrepreneur Development Mission (KSSEDM).
[Loans can be obtained through Mudra Loan Scheme easily. If you want to apply for Mudra Loan and wondering how to get it, read our article How to get Pradhan Mantri Mudra Yojana Loan]
Conclusion
Startups these days are highly encouraged and recognised by the government. More and more people prefer to set up a Startup rather than doing job as they get the sense of ownership and get numerous benefits from government. Government is offering various benefits for Startups to promote and cultivate an ecosystem where entrepreneurship plays a major role. So, if you are planning to start your own Startup, you need to comply with various legal obligations and businesses like Afleo.com can help you in setting your business.
You can focus on setting up and making strategic plans for your Startup while Afleo.com will register your business, register it on Startup India portal, get PAN, DSC, GST registration, incorporation certificate and many more things. Afleo.com mainly focuses on how to ease business set up for you, save your time and focus solely on your business. You just need to submit your documents and we will register your business hassle-free. So, now step forward, focus on your business and leave everything else on us!
Customer satisfaction is our motto. If you have any queries, feel free to contact us.
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