Starting a startup revolution |
such an exemption . Investment in ‘ computer or computer |
Startup India is a flagship initiative of the Government of India , |
software ’ ( as used in core business activity ) shall also be |
intended to build a strong eco-system for nurturing innovation |
considered as purchase of ‘ new assets ’ in order to promote |
and Startups in the country that will drive sustainable |
technology driven Startups . |
economic growth and generate large scale employment |
Tax Exemption to Startups for 3 years |
opportunities . The Government through this initiative aims to |
Innovation is the essence of every Startup . Young minds kindle |
empower Startups to grow through innovation and design . In |
new ideas every day to think beyond conventional strategies of |
order to meet the objectives of the initiative , Government of |
the existing corporate world . During the initial years , budding |
India is announcing this Action Plan that addresses all aspects |
entrepreneurs struggle to evaluate the feasibility of their |
of the Startup ecosystem . With this Action Plan the |
business idea . Significant capital investment is made in |
Government hopes to accelerate spreading of the Startup |
embracing ever-changing technology , fighting rising |
movement : |
competition and navigating through the unique challenges |
• From digital / technology sector to a wide array of sectors |
arising from their venture . Also , there are limited alternative |
including agriculture , manufacturing , social sector , |
sources of finance available to the small and growing |
healthcare , education , etc .; |
entrepreneurs , leading to constrained cash funds . With a view |
• From existing tier 1 cities to tier 2 and tier 3 cities including |
to stimulate the development of Startups in India and provide |
semi-urban and rural areas . The Action Plan is divided |
them a competitive platform , it is imperative that the profits of |
across the following areas : |
Startup initiatives are exempted from income-tax for a period |
• Simplification and Handholding |
of 3 years . This fiscal exemption shall facilitate growth of |
• Funding Support and Incentives |
business and meet the working capital requirements during the |
• Industry-Academia Partnership and Incubation |
initial years of operations . The exemption shall be available |
Proposed Schemes and Incentives |
subject to non-distribution of dividend by the Startup . |
Providing Funding Support through a Fund of Funds with a |
Tax Exemption on Investments above Fair Market Value |
Corpus of INR 10,000 crore . |
Under The Income Tax Act , 1961 , where a Startup ( company ) |
One of key challenges faced by Startups in India has been |
receives any consideration for issue of shares which exceeds |
access to finance . Often Startups , due to lack of collaterals or |
the Fair Market Value ( FMV ) of such shares , such excess |
existing cash flows , fail to justify the loans . Besides , the high |
consideration is taxable in the hands of recipient as Income |
risk nature of Startups wherein a significant percentage fail to |
from Other Sources . In the context of Startups , where the idea |
take-off , hampers their investment attractiveness . In order to |
is at a conceptualization or development stage , it is often |
provide funding support to Startups , Government will set up a |
difficult to determine the FMV of such shares . In majority of the |
fund with an initial corpus of INR 2,500 crore and a total |
cases , FMV is also significantly lower than the value at which |
corpus of INR 10,000 crore over a period 4 years ( i . e . INR 2,500 |
the capital investment is made . This results into the tax being |
crore per year ) . The Fund will be in the nature of Fund of |
levied under section 56 ( 2 ) ( viib ). Currently , investment by |
Funds , which means that it will not invest directly into |
venture capital funds in Startups is exempted from operations |
Startups , but shall participate in the capital of SEBI registered |
of this provision . The same shall be extended to investment |
Venture Funds . |
made by incubators in the Startups . |
Credit Guarantee Fund for Startups |
Launching of Innovation Focused Programs for Students |
In order to overcome traditional Indian stigma associated with |
In order to promote research and innovation among young |
failure of Startup enterprises in general and to encourage |
students , the Government shall implement the following |
experimentation among Startup entrepreneurs through |
measures : |
|
disruptive business models , credit guarantee comfort would
• Innovation Core : Innovation Core program shall be initiated
| |
help flow of Venture Debt from the formal Banking System . |
to target school kids with an outreach to 10 lakh innovations |
Debt funding to Startups is also perceived as high risk area and |
from 5 lakh schools . One lakh innovations would be targeted |
to encourage Banks and other Lenders to provide Venture |
and the top 10,000 innovations would be provided prototyping |
Debts to Startups , Credit guarantee mechanism through |
support . Of these 10,000 innovations , the best 100 would be |
National Credit Guarantee Trust Company ( NCGTC )/ SIDBI is |
shortlisted and showcased at the Annual Festival of |
being envisaged with a budgetary Corpus of INR 500 crore per |
Innovations in the Rashtrapati Bhavan . |
|
year for the next four years .
• NIDHI : A Grand Challenge program (“ National Initiative for
| |
|
Tax Exemption on Capital Gains
Due to their high risk nature , Startups are not able to attract
|
Developing and Harnessing Innovations ) shall be instituted through Innovation and Entrepreneurship Development |
investment in their initial stage . It is therefore important that |
Centres ( IEDCs ) to support and award INR 10 lakhs to 20 |
suitable incentives are provided to investors for investing in the |
student innovations from IEDCs . |
Startup ecosystem . With this objective , exemption shall be |
• Uchhattar Avishkar Yojana : A joint MHRD-DST scheme which |
given to persons who have capital gains during the year , if they |
has earmarked INR 250 crore per annum towards fostering |
have invested such capital gains in the Fund of Funds |
“ very high quality ” research amongst IIT students . The funding |
recognized by the Government . This will augment the funds |
towards this research will be 50 % contribution from MHRD , |
available to various VCs / AIFs for investment in Startups . In |
25 % from DST and 25 % from industry . This format has been |
addition , existing capital gain tax exemption for investment in |
devised to ensure that the research and funding gets utilized |
newly formed manufacturing MSMEs by individuals shall be |
bearing in mind its relevance to the industry . Each project may |
extended to all Startups . Currently , such an entity needs to |
amount to INR 5 crore only . This scheme will initially apply to |
purchase “ new assests ” with the capital gain received to avail |
IITs only . |