Start-Up – A Company In India (Important Benefits And Some Concerns)
Over to last year budget of 2017-18, Government approved various economic and fiscal measures for ‘Ease of doing business’ for Start-up in India. Aiming at economic ease – major changes were made to policies especially of business funding, taxation, trade policies and criteria of considering Composition Scheme for newly planted Start-ups.
Keeping the motive of booming growth with simplified procedural working, the definition of Start-up was always a point of concern for PM Narendra Modi. In count of numerous addresses to nation, he was always found keeping his vision of building a Start-up grounded environment in the economy. Also, he waved his Start-up Action Plan to economy to be based on his route of 3 basic policies:
- Easing business compliance’s in India by aiming to their ease in setup, operation and closing.
- Bringing new opportunities to entrepreneurs to continue or close their business with no place of keeping their personal property on risk.
- Bringing forward new, unique and innovative ideas of young entrepreneurs to light by easing statutory measures for them in their beginning days.
So, ‘What Actually a Start-up Is’?
The legit status of a Start-up in India as defined by Department of Industrial Policy and Promotion (DIPP) counts to these essential features as Start-up an entity, incorporated or registered in India :
- Not prior to seven years, however for Biotechnology Start ups not prior to ten years,
- With annual turnover not exceeding INR 25 crore in any preceding financial year, and
- Working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation (Provided that such entity is not formed by splitting up, or reconstruction, of a business already in existence. Provided also that an entity shall cease to be a Start-up if its turnover for the previous financial years has exceeded INR 25 Crore or it has completed 7 years and for biotechnology start-ups 10 years from the date of incorporation/ registration. Provided further that a Start-up shall be eligible for tax benefits only after it has obtained certification from the Inter-Ministerial Board, setup for such purpose. )
Also Read: Start-up Company Action Plan (Legal Perspectives)
Benefits of Working as a Registered Start-Up
The Start-up policy is an effective measure to bring network of entrepreneurs close to Ease of Doing Business vision of government. Also, it is known that this policy will not only empower business ideas to grow with zero rate of difficulty but will also enable them to raise their ambit of future plans with coming policies of government as registered and recognised entities.
Key benefits of registering a Start-up business:
- Tax Exemption: It has been proposed in the Finance Act 2016, to help initial start-ups to avail tax exemption for a block of 3 years, subjecting to the provision that they are incorporated between 1st April, 2016 to 31st March, 2019 and are holding an authorised eligibility certificate from the Inter-Ministerial Board of DIPP. Under the policy the registered start-ups are also allowed tax exemption on capital gains and gains on holding investment above fair market value.
- Ease in Compliance’s : A recognised start-up registered under government records and availing benefits under Start-up India policy shall :
- Get ease in patent application and rebate upto 80% in patent filing.
- Be allowed to self-certify compliance with 9 Labour and Environmental laws.
- Not be inspected in cases of labour laws for upto 3 years
- Be able to self certify compliance, in case environmental laws for Start-ups which fall under the ‘white category’ (as defined by the Central Pollution Control Board).
3. Ease in Funding: With registered policy of Start-up India, the companies registered as start-ups would be able to raise quick funds through various alternate investment sources and rated credit agencies like National Credit Guarantee Trust Company and Small Industries Development Bank of India ( SIDBI) for over 4 years .
Start-up India Key Concerns:
The government plan of action with the Start-up policy not only bounds the registered entity with benefits but also brings some restrictions and unexplained points , which may hamper the diligence of their working in the long run. Some major concerns have been summarised below:
Q1. Would an entity be allowed to register as a “Start-up” if it does not have a PAN?
- Yes, an entity without a PAN can be registered as a Start-up. However, it is advised that a valid PAN of the entity is provided at the time of registration, as each entity is separately taxable person.
Q2. Would a One Person Company (OPC) be eligible to avail benefits under the Start-up India initiative?
- Yes, One Person Companies are eligible to avail benefits.
Q3. Is there any restriction on Acceptance of deposits by Private Companies from its members?
- Referring to Section 73 of the Companies Act, 2013 and Notification dated 5th June, 2015, the amount shall not exceed 100% of their paid up capital and free reserves. Since acceptance of deposits from members enables the start ups to raise the funds without any additional compliance costs, the limitation detailed here hinders the smooth raising of funds.
Q4.If an incubator rejects an application of registration under Start-up India programme, can the entity apply again to the same incubator or would it be required to apply at a different incubator?
- In such cases, an entity can apply again to the same incubator that rejected the application, as well as any other incubator.