Highlights on Startup Action Plan - GOI

1. Presentation by CA Mehul R. Shah
Highlights on Startup Action Plan -
GOI

2. The Action Plan is an initiative of the
Government of India to build a strong eco-
system for nurturing innovation in order
to accelerate economic growth and
generate employment opportunities.

3. Compliance Regime based on
Self-Certification
Regulatory formalities requiring compliance with various Labour and
Environment laws are time consuming and difficult in nature.
In order to make compliance for Startups friendly and flexible, simplifications
are required in the regulatory regime.
Accordingly, the process of conducting inspections shall be made more
meaningful and simple.
Compliance pertaining to 6 Labour and 3 Environmental laws will be
allowed to be self-certified through the Startup mobile app.
In case of the Labour laws, no inspections will be conducted for a period of 3
years.

4. Compliance Regime based on
Self-Certification
Labour Laws:
 The Building and Other Constructions Workers’ (Regulation of Employment &
Conditions of Service) Act, 1996
 The Inter-State Migrant Workmen (Regulation of Employment & Conditions
of Service) Act, 1979
 The Payment of Gratuity Act, 1972
 The Contract Labour (Regulation and Abolition) Act, 1970
 The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
 The Employees’ State Insurance Act, 1948

5. Environment Laws:
 The Water (Prevention & Control of Pollution) Act, 1974
 The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
 The Air (Prevention & Control of Pollution) Act, 1981
Compliance Regime based on
Self-Certification

6. Rolling-out of Mobile App and
Portal
Currently, the Startup ecosystem in India also lacks formal platform(s) for Startups
to connect and collaborate with other ecosystem partners.
Towards these efforts, the Government shall introduce a Mobile App to provide on-
the-go accessibility for:
• Registering Startups with relevant agencies of the Government. A simple form
shall be made available for the same.
•The Mobile App shall have backend integration with Ministry of Corporate Affairs
and Registrar of Firms for seamless information exchange and processing of
the registration application
• Tracking the status of the registration application and anytime downloading of
the registration certificate. A digital version of the final registration certificate shall
be made available for downloading through the Mobile App.

7. ▸Collaborating with various Startup ecosystem partners. The App
shall provide a collaborative platform with a national network of
stakeholders (including venture funds, incubators,
academia, mentors etc.) of the Startup ecosystem to have
discussions towards enhancing and bolstering the ecosystem
▸Applying for various schemes being undertaken under the
Startup India Action Plan.
▸The App shall be made available from April 01, 2016 on all
leading mobile/ smart devices’ platforms. The Startup portal
shall have similar functionalities (being offered through the
mobile app) using a richer web-based User Interface.
Rolling-out of Mobile App and Portal

8. Faster Exit for Startups
▸Its said 3 out of 4 Startups fail.
▸Modified and more friendly Bankruptcy Code to ensure 90-day
exit window.

9. ▸Due to their high risk nature, Startups are not able to attract
investment in their initial stage. It is therefore important that suitable
incentives are provided to investors for investing in the
Startup ecosystem.
▸With this objective, exemption shall be given 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.
▸In addition, existing capital gain tax exemption for investment in
newly formed manufacturing MSMEs by individuals shall be extended to
all Startups.
▸Currently, such an entity needs to purchase “new assets” with the
capital gain received to avail such an exemption. Investment in
‘computer or computer software’ (as used in core business activity)
shall also be considered as purchase of ‘new assets’ in order to promote
Tax Exemption on Capital Gains

10. Tax Exemption on Investments above Fair
Market Value
▸Under The Income Tax Act, 1961, where a Startup (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.
▸Investments made by incubators in Startups proposed to be
insulated from the rigors of 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.
▸The term “incubator” is yet to be defined for the above purpose.

11. Incubator
▸Business incubation is a unique and highly flexible combination of
business development processes, infrastructure and people designed to
nurture new and small businesses by helping them to survive and grow
through the difficult and vulnerable early stages of development.
▸An organization designed to accelerate the growth and success of
entrepreneurial companies through an array of business support
resources and services that could include physical space, capital,
coaching, common services, and networking connections.

13. Tax Exemption to Startups for 3 years
•Income Tax Exemption for Startups for the period of 3 years.
•Exemption subject to non-distribution of dividend by the Start-
up
•Any 3 years to be claimed from 5 years.
•.

14. Legal support and fast-tracking patent application
•Start-up Intellectual Property Protection (SIPP) scheme will be
•introduced on a pilot basis for a one year period to facilitate
filing of Patents, Trademarks and Designs.
•The scheme would include:
•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.

15. Legal support and fast-tracking patent application
•Such Facilitators will also provide end-to-end advisory from
making applications till the stage of final disposal of the IPR
application.
•The Government will bear the cost of such Facilitators and the
•Startups shall bear only the cost of the applicable statutory
fees.
•A rebate of 80% on patent filing fees vis-à-vis other companies
is proposed.

16. Annual Incubator Grand Challenge
The Government is proposing to make forward looking
investments towards building world class incubators. In its first
phase, the aim is to establish 10 such incubators. To enable
this, GoI shall identify and select 10 incubators who have the
potential to become world class. These incubators would
be given INR 10 crore each as financial assistance which may
be used for ramping up the quality of service offerings.
An “Incubator Grand Challenge” exercise shall be carried out for
identification of these incubators. The exercise shall entail:
•Open invitation of applications from incubators
•Screening and evaluation based on pre-defined Key
Performance Indicators (KPIs)
The Incubator Grand Challenge shall be an annual exercise.

17. Financing
Funds of funds with a corpus of Rs 10,000 crore
In order to provide funding support to startups, the government
will set up a fund with an initial corpus of Rs 2,500 crore and a
total corpus of Rs 10,000 crore over four years. The fund would
be managed by private professionals drawn from the industry
while LIC will be a co-investor in the fund. The credit guarantee
fund for start-ups would help flow of venture debt from the
banking system to start-ups by standing guarantee against
risks.

18. Financing
Credit Guarantee Fund
A National Credit Guarantee Trust Company is being envisaged
with a budgetary allocation of Rs 500 crore per year for the next
four years.

19. Disclaimer
These are just my opinion. Opinion are
like wrist watches. All show different
times but all think that their time is
correct…
zda

20. ABOUT THE AUTHOR
Author, Mr. Mehul Rasesh Shah is a member of the
ICAI. He has pursued certificate Course in International
Taxation in the year 2012 conducted by the ICAI. He has also
completed his Diploma in IFRS (ACCA, London) and Advanced
Diploma in Management Accounting (CIMA, London) in the
year 2013. Currently he is handling many Appellate
proceedings including representation before the Tribunal and
Settlement Commission.

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