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. |
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year for the next four years.
• NIDHI: A Grand Challenge program(“ National Initiative for
| |
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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. |