During the initial years, budding entrepreneurs struggle to evaluate the feasibility of their business idea. Also, there are limited alternative sources of finance available to the small and growing entrepreneurs, leading to constrained cash funds. Hence the GOI feels it is imperative to provide them with a competitive platform.
1. Tax Benefits
Waiver from income tax at the initial stage
a company that meets the criteria for an eligible startup in India and that has been incorporated between April 1st, 2016 and April 1st, 2021 can avail of a deduction of 100% of the profits for a block of three years within the first seven years it was incorporated.
Relaxation for carrying forward losses and set-off
The income tax law provides for the carrying forward and set off of business losses. This set off will be denied for any private companies if there is a 50% or more change in the shareholding pattern of that company from the year in which they saw losses.
Exemption from long-term capital gains tax to investors of startups
From the transfer of a residential property that arises to a HUF or an individual, one is exempted from paying tax on their long-term capital gain where the net consideration is invested in the equity shares of any eligible startups.
An eligible start-up in India can claim a 100 per cent deduction against its business income for consecutive 3 years. These can be any 3 years out of 10 years since its incorporation.
2. Government Schemes for Start ups
some important schemes that government has implemented for promotion of startups are:
Start Up India
The government has already launched the I-MADE programme to assist Indian entrepreneurs in creating 10 lakh (1 million) mobile app start-ups, as well as the MUDRA Bank’s scheme (Pradhan Mantri Mudra Yojana) to provide micro-finance, low-interest rate loans to entrepreneurs from low socioeconomic backgrounds. This program has been allotted an initial capital of 20,000 crores (equal to 230 billion or US$3.2 billion in 2019).
Make in India
It is a program launched by the Prime Minister as a wider set of nation-building initiatives. On the backbone of “Make in India”, “The Startup India Action Plan” is a flagship initiative of the GOI in an attempt to establish India on the global markets. Under this program, there are a number of benefits offered by the GOI to help these budding initiatives.
ATAL Innovation Mission
The government scheme, set up by Niti Aayog, was created to promote an innovative culture and the development of the spirit of entrepreneurship across India. The scheme aims to create cooperation between state, central, and local innovation schemes and implement entrepreneurship spirit from schools to corporates by developing world-class Atal Incubators (AICs). This would help to address commercial and social entrepreneurship ventures in India.
Founded in 2013, this is the first online platform that allows government-to-business (G2B) communication. e-Biz’s portal primary purpose was to create an entrepreneurship friendly atmosphere in the country. The platform has been developed by Infosys and has launched 29 services across 5 states in India. It is a single communication online forum for Indian businesspeople and investors for conducting transactions, clearances, and activities related to both of them.
Support for International Patent Protection in Electronics & Information Technology (SIP-EIT)
The SIP-EIT scheme was launched by the Ministry of Electronics and Information Technology to provide financial funding for MSMEs and Technology Startups to encourage innovation, acknowledge international patent rights and optimise the growth of the sector in the county. Businesses that want to go global need to apply for intellectual property rights as innovations are at risk of being stolen or misappropriated. Hence, the government has executed various protection measures through the SIP-EIT scheme.
One of the key challenges faced by Startups is access to finance. Often Startups, due to lack of collaterals or existing cash flows, fail to justify the loans. Besides, the high risk nature of Startups, hampers their investment attractiveness. In order to provide funding support to Startups,
GOI to set up “fund a fund” with a total corpus of INR 10,000 crore over a period 4 years (i.e. INR 2,500 crore per year). Fund a Fund shall not invest directly in a startup, but shall participate in the capital of SEBI registered Venture Funds.
Setup credit guarantee mechanism through National Credit Guarantee Trust Company, to encourage Banks and Lenders to extend credit to start ups.
Regulatory formalities, even for an established business, can be onerous. For a startup focusing its energies on establishing a new business, this might become an unravelling hurdle. Startups required only to comply with 9 primary labor and environment laws.
Self-certification allowed No inspection for labor law compliances for first 3 years. Under Environmental Laws – Central Pollution Control Board to put Startups under- WHITE CATEGORY.
INTELLECTUAL PROPERTY RIGHTS
Limited resources make it tough for startups to sustain in this highly competitive world. With innovative ideas at the forefront it is crucial that they protect their IP rights.
- GOI to start “Startup Intellectual Property Protection Scheme” (SIPP) scheme, to facilitate filing of Patents, Trademarks and Designs.
- Setup process to fast track patent applications.
- Appoint a panel of Facilitators to assist in filing of IP applications, provide general advice on IP rights and information on protection and promotion of IPRs in other countries.
- GOI to bear facilitation cost, and the startups to bear only statutory fees.
- Up to 80% rebate on filing of application
A number of tenders are floated yearly to full fill the government sector’s procurement needs. This can be a business opportunity for budding business and recognizing the same GOI is making provisions to facilitate business generation for startups through this procurement process.
Central and all State Governments and PSUs to make 20 percent procurement from Micro Small and Medium Enterprise (MSME).
Startups (in the manufacturing sector) to be exempt from “prior experience/ turnover” criteria, but no relaxation in quality standards or technical parameters.
WINDING DOWN THE BUSINESS
From the legal standpoint, there are basically three ways to shut down a startup:
- Fast Track Exit Mode
- Court or Tribunal Route
- Voluntary Closure
In addition to the above stated means, The Insolvency and Bankruptcy Bill, 2015 is a new closure tool that entrepreneurs can use. Leveraging this bill requires startups to have simple debt structures, where an insolvency professional is hired to liquidate the assets of the company within 90 days, in accordance to the ‘Startup India Action Plan’.
If a startup does not wish to operate but also not shut down, it can apply to be a ‘Dormant Company’, that allows a company to stay afloat with minimum compliance. However, a company dormant for a period of 5 years is automatically struck off from the ROC.
Start-ups based in India that are already enriched with innovation and creativity to bring change in the market is further supported by the Government so as to initiate and help bring new ideas into force. It is not only of supporting start-ups but also acts as a step towards socio-economic development of the country. Development in the society is necessary and it can be brought only through ideas that acts as a disruption and introduce new and efficient products and services in the market.
SERVICES PROVIDED BY LEGALLANDS
We help the aspiring entrepreneurs of start ups in India to easily go through the procedure of opening up a startup without having to face any difficulties with the tedious and strenuous procedures. By following the three important aspects of a business setup, we abide by all the legal compliances, IPRs, Contract Drafting & Negotiations, dealing with the public procurements, tax exemptions, dissolution and most importantly, the funding process.