On 16th January 2016, Government of India unveiled the Startup India Action Plan 2016. The action plan includes several positive initiatives for Indian startup entrepreneurs. The event is significant in the Indian industry because it was the first of its kind that encouraged the startup eco-system in India. Here in this article, we will explore the key features of the Startup India Action Plan 2016.
Startup India Action Plan 2016 – Key Highlights
Definition of Startups
The plan has declared the definition of the startup. Till date, a Startup was not separated in various policies of the Government. All were businesses. The startup India action plan defines ‘startup’ as an entity, registered in India, not prior to five years, with an annual turnover not exceeding Rs 25 Crore, in any previous years, working towards innovation, development, deployment and commercialization of new products, processes or services.
- Registered proprietorship, registered partnership, Limited Liability Partnership (LLP), Pvt. Ltd Company and Ltd. Companies are eligible for startup India action plan. The companies are even registered before the announcement are eligible for this plan.
- The company must come up with new product or service or process.
- Additionally, the company engaged in improving the existing product or services or processes are also eligible.
- the company must be supported by a recommendation in a format specified by DIPP.
- The firm must be supported by an incubator which is funded from GoI as part of any specified scheme.
- The company must have a patent granted by the Indian Patent and Trademark office in areas affiliated with the nature of business.
To promote the growth of startups, profit of startups, set up after April 1,2016, shall be exempted from income-tax for a period of three years. Exemption subject to non-distribution of dividend by the Startup.
Startup India Hub
Government to set up a Startup India Hub which will be a single-point of contact for Startups. Such hub will enable knowledge exchange by collaborating with various stakeholders such as the Central and State Governments, legal partners, consultants, universities, R&D institutions and assist in the funding process.
Fund of Funds with a corpus of Rs.10,000 crore
Government to set up a Fund with an initial corpus of Rs.2,500 crore and a total corpus of Rs.10,000 crore over a period of 4 years. Such Fund will not invest into Startups directly, but shall participate in the capital of SEBI registered venture fund.
Credit Guarantee Fund for Startups
Credit Guarantee Fund aims to catalyse entrepreneurship through credit to innovators across all sections of society. The Credit Guarantee mechanism shall be rolled out through the National Credit Guarantee Trust Company/SIDBI with a budgetary corpus of Rs. 500 crores per year for the next 4 years.
An introduction of Startup fests to bolster the Startups ecosystem and provide a platform to showcase ideas and work with a larger audience. Such fests would help in showcasing innovation and provide a platform for collaboration thereby connecting with investors, mentors, incubators, exhibitions, product launches, etc.
Atal Innovation Mission (AIM)
AIM proposes to promote entrepreneurship through Self-Employment and Talent Utilization (“SETU”), wherein innovators would be supported and mentored to become successful entrepreneurs.
Set up of Incubators
To leverage private sector expertise in the set-up of incubators, it is proposed that 35 new incubators be set up in existing institutions. Funding support of 40% (subject to a maximum of Rs.10 crore) is proposed to be provided by the Central Government for the establishment of new incubators in existing institutions; balance funding to be committed by the respective State Government and private sector.
In order to augment incubation and R&D efforts, 31 centres of Innovation and entrepreneurship will be setup/scaled up for providing facilities to over 1,200 Startups, at national institutes. These 31 centres will include 13 Startup centres and 18 technology business incubators to be set up/ scaled up at IIMs/ NITs/ IITs.
7 new research parks are proposed to be set up with an initial investment of Rs.100 crore each. These parks shall enable companies with a research focus to set up base and leverage the expertise of academic/ research institutions.
Promote entrepreneurship in biotechnology
5 new bio-clusters, 50 new bio-incubators, 150 technology transfer offices and 20 bio connect offices will be established through Biotechnology Research Assistance Council (BIRAC). Biotech Equity Fund – would be set up in partnership with National and Global Equity Funds to provide financial assistance to young Biotech Startups.
Innovation focused programs for students
Innovation core program shall be initiated to target school kids with an outreach to 10 lakh innovations from 5 lakh schools. Further, 10,000 innovations will be provided prototyping support and the top 100 would be showcased at the Annual Festival of Innovations at the Rashtrapati Bhavan.
Annual Incubator Grand Challenge
In order to assist in building world class incubators, the Government proposes to initially identify and establish 10 incubators with a financial assistance of Rs.10 crore each. Further, an annual “Incubator Grand Challenge” will be held to identify incubators who can become world class.
Faster Exit for Startups
The Insolvency and Bankruptcy Bill 2015 (“IBB”), will allow fast track and / or voluntary closure of
businesses. Startups satisfying the specified conditions of the IBBwill be allowed to be wound up in 90 days on a fast track basis.
Legal support and fast-tracking patent application
Startup Intellectual Property Protection (SIPP) scheme will be introduced on a pilot basis for a one year period to facilitate the filing of Patents, Trademarks, and Designs. The scheme would include the fast-tracking patent application. Setting up a panel of “Facilitators” who will advise on different Intellectual Property Rights (“IPR”) and also provide advice on promoting and protection of IPRs in overseas jurisdictions.
Relaxed Norms of Public Procurement for Startups
Startups (in the manufacturing sector) shall be exempted from the criteria of “prior experience/ turnover” in tenders floated by any Government entity or PSU without any relaxation in quality standards or technical parameters.
Capital gains tax exemptions
A capital gains exemption mechanism has been proposed for investors (class of investors to be specified) investing in the Startup ecosystem. Capital gains invested in “Fund of Funds” recognized by the Government shall be exempted.
Tax exemption for investments made above Fair Market Value (FMV)
Investments made by incubators in Startups proposed to be insulated from the Section 56(2) (viib) of the Income-tax Act, 1961. Any consideration received by Startups for issuance of shares over FMV to incubators, not to be taxed in the hands of the Startup.
Startup India Action Plan-2016 is definitely a significant step addressing the major issues. Some of them are simplifying the process to obtain certain regulatory registrations and approvals by rolling out the proposed Mobile App and Portal. Additionally, it is enabling faster exits from a regulatory perspective, providing funding support and credit guarantee for Startups. Also, it is permitting certain specified tax benefits. With the assistance of the scheme Startup India Action Plan-2016, we believe, our country has the potential to be world’s number one startup eco-system.
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