START-UP SCHEMES

 

The Government of India with an intention to boost the economy, generating employment opportunities and to encourage innovations, research and development has brought about various schemes for the benefit of Start-ups. Most of the schemes brought in by the Government are sector specific aiming to increase and motivate start-ups in such sectors for playing greater role in the economy. Further, the Government vide Notification dated 19^th February 2019 has recognised “Start-Ups” as a special category for availing various benefits under Income Tax Act 1961, Labour Laws, FEM (External Commercial Borrowing) Regulations and Patent Registration Act 1970.

Start-up

In terms of Section 1 of Notification G.S.R. 127(E) dated 19^th February 2019, an entity to be recognized as a “start-up”, it must fulfill the following criteria:

Ø  Entity must either be a private limited company or a limited liability partnership or a registered partnership firm.

Ø  The age of such entity must be less than ten years. Inotherwords, an entity shall not be considered as a Startup or shall cease to be considered a Startup on completion of ten years from the date of its incorporation/ registration.

Ø  Turnover of the entity for any of the financial years since incorporation/ registration should not have exceeded INR One Hundred Crore.

Ø  Entity must be working towards innovation, development or improvement of products or processes or services or if it is a scalable business model with a high potential of employment generation or wealth creation.

An entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’.    

To avail the benefits from various schemes an eligible entity has to make an online application through Startup India Website with a copy of Certificate of Incorporation or Registration, as the case may be, along with a write-up about the nature of business highlighting the innovation, development or improvement of products or processes or services or its scalability in terms of employment generation or wealth creation.

The  Department of Promotion of Industry and Internal Trade (DPIIT) may, after calling for such documents or information and making such enquires, as it may deem fit, recognise the eligible entity as a Startup.

Once the entity is recognized as “Start-Up”, such entity will be eligible to avail following benefits and schemes from the Government:

Income Tax deduction on profits under Section 80-IAC of Income Tax Act:

 A recognized “Startup” can claim deduction under Section 80-IAC of Income Tax Act for a period of three consecutive years to the extent of 100% of the profits and gains derived from such business. In other words no income tax will be chargeable on the entity on profits earned. The deduction can be claimed by the entity for any three consecutive assessment years out of seven years beginning from the year in which the Startup was incorporated. The Startup has to apply to the Inter-Ministerial Board to claim the exemption and has to further fulfill following conditions:

Ø  Start-up can be a private limited company or a limited liability partnership.  It is to be noted here that a registered partnership firm though recognized as Startup cannot claim deduction under this Section.

Ø  Such entity must be incorporated on or after 1st April 2016 but before 1st April 2021.

 

Exemption for the purpose of Clause (viib) of sub-section (2) of Section 56 of the Income Tax Act, 1961

Recognised Startups can claim exemption from applicable tax under Section 56 of the Income Tax for funds raised through issue of shares at a premium provided that aggregate amount of paid up share capital and share premium of the Startup after issue shares does not exceed twenty five crore rupees. The claim such exemption, funds so raised cannot be utilized for the purchase of immovable assets like building or land other than for the use of the Startup, capital contribution made in any other entity towards acquisition of shares and other securities, purchase of a motor vehicle, aircraft, yacht or any other mode of transport and such others.

Self Certification

Startups are allowed to self-certify (through the Startup mobile app) with certain labour departments as listed below:

Ø  The Payment of Gratuity Act, 1972

Ø  The Contract Labour (Regulation and Abolition) Act, 1970

Ø  The Employees’ State Insurance Act, 1948

Ø  The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952

Ø  The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979

Ø  Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996

No inspection will be conducted on the entity for a period of 3 years as arising from labour laws. Startups may be inspected only on receipt of credible and verifiable complaint of violation filed in writing and approved by at least one level senior to the inspecting officer.

Startup India Scheme for Women

Start Up India Scheme facilitates bank loans between 10 lakh and 1 crore to at least one women entrepreneur per bank branch for setting up a greenfield enterprise. GreenField signifies, in this context, the first time venture of the beneficiary in the manufacturing or services or trading sector. In case of non-individual enterprises at least 51% of the shareholding and controlling stake should be held by a woman entrepreneur. 

 

Credit Guarantee Scheme for Startups (CGSS)

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE ) was set up by the Government of India to provide business loans to micro and small industries, and startup business with zero collateral. It allows the new and upcoming startups to avail the loans at highly subsidised interest rates without providing any security. Working along with SIDBI (Small Industries Development Bank of India), the government provides a maximum amount of up to Rs. 1 Crore under this scheme for boosting new enterprises as well as rehabilitating the existing ones. Primarily for manufacturing units, this loan can be availed in the form of working capital or term loan.

Support for International Patent Protection in E&IT (SIP-EIT)

This scheme provides financial support to MSMEs and Technology Startup units for international patent filing. Features and benefits of the SIP-EIT scheme are:

Financial support is provided for international filing in Information Communication Technologies and Electronics sector only.

The Reimbursement limit has been set to the maximum of Rs. 15 Lakhs per invention or 50% of the total charges incurred in filing and processing of a patent application, whichever is lesser.

The scheme can be applied at any stage of international patent filing by the applicant

While these are few schemes which are sector agnostic, there are certain schemes available for specific sectors such as Agri-based industries, Electronics and IT, renewable Energy, Traditional Industries etc. To know more about schemes specific to your industry visit here.