Startup India Action Plan 2016

The day of 16th January, 2016 can be marked as one of the prominent days for budding Indian Entrepreneurs, with the Prime Minister, Shri Narendra Modi, announcing the “Startup India Action Plan”, intended to boost and support the startup ecosystem in India. First announced on the occasion of India’s 69th Independence Day, the Startup India initiative has taken a full-fledged shape after the Government released the key initiatives to create a strong ecosystem for fostering innovation and startups in India.

Presented here are some of the highlights of the Startup India Action Plan 2016:

  • Compliance based on Self-Certification To reduce the regulatory and compliance burden on Startups and allowing them to focus on their core business, the government has relaxed various regulatory formalities required in labour and environment laws. In order to make the compliance for Startups simplistic, the process of conducting inspections shall be streamlined and hasslefree and Startups shall be allowed to self certify compliance with various labour and environmental laws. Only random checks would be carried out in certain cases.
  • Startup India Hub: The Startup India hub will be created to create a single point of contact for the entire Startup ecosystem and enable knowledge exchange and access to funding. It will collaborate with Central & State governments, Indian and foreign VCs, angel networks, banks, incubators, legal partners, consultants, universities and R&D institutions to assist Startups on various aspects through their lifecycle. Organizing Key Mentorship Programs, Obtaining financing and providing business structuring advisory and knowledge for enhancement of marketing skills will be the key initiatives of the Startup hub. This will definitely act as a great support system and platform to nurture to the whole range of booming entrepreneurs who will add to the Indian economy.
  • Rolling-out of Mobile App and Portal as a Regulatory Facilitator: Starting from April1, 2016, a Mobile App will be launched serving as the single platform for Startups for interacting with Government and Regulatory Institutions for all business needs and information exchange among various stakeholders. It will facilitate:
    • Registering Startups with relevant agencies of the Government.
    • Tracking the status of the registration application and anytime downloading of the Registration
    • Filing for compliances and obtaining information on various clearances/ approvals/ registrations
    • Collaborating with various Startup ecosystem partners. including venture funds, incubators, academia, mentors etc.
    • Applying for various schemes being undertaken under the Startup India Action Plan
  • Legal Support and Fast Track Patent Application at Lower Cost “The future of India is in Creativity and Innovation” – said The Prime Minister and in order to support the Intellectual Property, the government shall provide access to high quality Intellectual Property services and resources, including fast-track examination of patent applications and rebate in fees. The scheme for Startup Intellectual Property Protection (SIPP) shall facilitate filing of Patents, Trademarks and Designs by innovative Startups. A panel of facilitators shall be deployed by the government to assist in filing of IP applications. There will be 80% rebate in filing of patents for startups which will help them save costs in the crucial formative years.
  • Relaxed Norms for Public Procurement of Startups: This initiative aims to provide an equal platform to Startups, in the manufacturing sector, vis-à-vis the experienced entrepreneurs/ companies in public procurement. In order to promote Startups, Government shall exempt such Startups from the criteria of “prior experience or turnover” without any relaxation in quality standards or technical parameters. The Startups will also have to demonstrate requisite capability and should have their own manufacturing facility in India.
  • Faster Exit for Startups: Given the innovative nature of Startups, a significant percentage fail to succeed. In the event of a business failure, provisions have been made to facilitate easier exit for startups. A swift and simple process has been proposed for Startups to wind-up operations. This will promote entrepreneurs to experiment with new and innovative ideas, without having the fear of facing a complex exit process with their capital stuck in.
  • Providing Funding Support: To provide funding support for development and growth of innovation driven enterprises, the Government will set up a fund with an initial corpus of INR 2,500 crore and a total corpus of INR 10,000 crore over a period 4 years. The Fund will be in the nature of Fund of Funds, which means that it will not invest directly into Startups, but shall participate in the capital of SEBI registered Venture Funds.
  • Credit Guarantee Fund for Startups: To encourage Banks and other Lenders to provide Venture Debts to Startups, Credit guarantee mechanism through National Credit Guarantee Trust Company (NCGTC)/ SIDBI is being envisaged with a budgetary Corpus of INR 500 crore per year for the next four years. This will act as a catalyst for entrepreneurship by providing credit to innovators across all sections of society.
  • Tax Exemption on Capital Gains: To promote investments into Startups, the government has come up with incentives to promote investment into the startup ecosystem. These include:
    • Exemption to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government.
    • Existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups.
  • Tax Exemption to startups for three years: With a view to stimulate the development of Startups in India and provide them a competitive platform, profits of Startup initiatives have been are exempted from income-tax for a period of 3 years. This fiscal exemption shall facilitate growth of business and meet the working capital requirements during the initial years of operations.
  • Tax Exemption on Investments above Fair Market Value: Under The Income Tax Act, 1961, where a 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. In the context of Startups, it is often difficult to determine the FMV of such shares. In majority of the cases, FMV is also significantly lower than the value at which the capital investment is made. This results into the tax being levied. Currently, investment by venture capital funds in Startups is exempted from such tax. The same shall be extended to investment made by incubators in the Startups.
  • Industry Academia Incubation and Partnerships:
    • Organizing Startup fests for showcasing Innovation and providing a collaboration platform
    • Launch of Atal Innovation Mission (AIM) with Self-Employment and Talent Utilization Program
    • Public-Private Partnership for setting up Incubators
    • Building Innovation Centres at National Institutes
    • Setting up Seven new Research Parks modeled on the Research Park Setup at IIT Madras
    • Promoting Startups in Biotechnology Sector
    • Launching of Innovation Focused Programs for Students
    • Annual Incubator Grand Challenge
Nikita Bhatia
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