In a bid to encourage start-ups in India, the government is offering them a series of benefits, right from tax holidays to funding.
India has had start-ups ever since the term was invented, but only in the last five years have they begun to get the attention they deserve. This is clear not only from how they dominate news and entertainment media, but also from the increasing number of advantages made available to entrepreneurs running start-ups. These exemptions and preferential treatment aren’t just to encourage entrepreneurship, but are also necessary in an ecosystem that values growth over profits in the early stages. Therefore, all four of the available benefits we will discuss are for young businesses who dream of going big.
Take a Tax Holiday
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The government, earlier this year, announced a tax holiday for all early-stage Indian start-ups who’ve been incorporated after April 2016, up until March 2019.
To quality for this, as per the Startup India Action Plan, you need to prove that your entity:
a) Currently has an annual turnover of less than Rs. 2.5 crore.
b) Is building an innovative solution. It can be a new product or service or process or even an improvement on an existing one.
c) Is a commercial entity.
d) Is a private limited company, limited liability partnership or a registered partnership that has not been formed through the reconstruction of an older business.
If you do qualify as a start-up, you will need to pay zero income tax for a period of three to five years (maximum alternate tax would, however, need to be paid), so long as your turnover stays below Rs. 25 crore.
Why go the VC way when you can tap into 10,000 Crore?
One of the most difficult things about running a start-up is having to be answerable to a venture capitalist. And that is if you succeed in raising funding, which may not be possible if your solution is not exactly the flavour of the season.
You needn’t go down this road, though. The government has earmarked Rs. 10,000 crore, under the SIDBI Startup Mitra scheme, for start-ups involved in building disruptive businesses. This Rs. 10,000 crore will be allocated across start-ups over the next few years. Rs. 500 crore has been earmarked for 2016-17, and Rs. 600 crore has been set aside for 2017-18.
Funding from government means generous terms for your business and more freedom, with all the professional support you would get from a professional VC firm.
To facilitate this programme, the government has created a Fund of Funds for Startups and contributed its corpus to various Alternative Investment Funds registered with SEBI. Currently, a little under 100 AIFs are tied up with SIDBI, including Indian Angel Network and ICICI Venture.
A quicker and cheaper patent process
Even start-ups can be disrupted, by other start-ups. You may have come up the idea first, but that doesn’t mean someone can’t come along with more funding and beat you at your own game. There is one way to prevent this, though – by applying for a patent, which will give you a 20-year advantage over your rivals.
As a start-up, you can apply for a patent at a low price and even get it approved at a much quicker pace. While non-start-ups will need to pay Rs. 30,000 to have a patent registered, the government has slashed patent fees by 80% to encourage start-ups to patent their technologies.
Furthermore, the government has also announced that, in case of rejection, start-ups will get up to 90% of their money back.
This tatkal scheme is, however, only available to applications filed online by start-ups if:
a) It has been recommended by an incubator formed in an Indian college with a post-graduate programme. The recommendation should be toward the innovative nature of its business; or
b) It has the support of an incubator funded by the government to promote innovation; or
c) It has been funded by the government itself for its innovative efforts in a particular field; or
d) It has been funded by a SEBI-registered Accelerator/Angel Fund/Incubator/Private Equity Fund.
Get an SSI Registration:
One of the quickest ways for entrepreneurs to get access to exemptions, fast-track essential government approvals and receive subsidies on infrastructure is to apply for an MSME certification. This is available to small Indian business with a turnover of up to Rs. 10 crore for manufacturing businesses, and up to Rs. 5 crore for service providers.
State and central governments offer a slew of subsidies and exemptions to those who register under this scheme, which is often quickly approved. It can enable massive savings and also makes government approvals and banking support more easily available.
The benefits available include:
a) Priority sector lending and credit prescription
b) Income Tax and state tax exemptions as per the state policies
c) Concessions in energy consumption and tariff
d) Preferential treatment with regard to the purchase of goods produced
e) Excise exemption scheme
Budget 2016 has introduced many other benefits to the entrepreneurs who are starting to venture into the business arena. In addition to what has been mentioned above, we have seen the introduction of altered duty rates for import of parts and goods necessary for production, and amendments to the Companies Act of 2013, to facilitate a healthy environment for start-ups.
Click here if you would like to learn how to register a company.
This article has been authored by Hrishikesh Datar, Founder & CEO of Vakilsearch.com, India’s largest facilitator of legal services online.