Benefits to startups by Indian Government

Startups are becoming very popular in India. The government under the leadership of PM
Narendra Modi has started and promoted Startup India.

To promote growth and help Indian economy, many benefits are being given to entrepreneurs
establishing startups.

1. Simple process

Government of India has propelled a portable application and a site for simple
enlistment for new businesses. Anybody interested by setting up a startup can top off
a basic frame on the site and transfer certain archives. The whole procedure is totally
on the web.

2. Reduction in cost

The government additionally gives arrangements of facilitators of patents and

trademarks. They will give great Intellectual Property Right Services including quick
examination of patents after brought down expenses. The government will bear all
facilitator expenses and the startup will bear just the statutory charges. They will
depreciate 80% decrease in cost of recording patents.

3. Easy access to Funds

A 10,000 crore rupees finance is set-up by government to give funds to the new
companies as funding. The government is likewise offering assurance to the
moneylenders to empower banks and other monetary organizations for giving
funding.

4.  Tax holiday for 3 Years   

Startups will be exempted from income tax for 3 years provided they get a certification from
Inter-Ministerial Board (IMB). One of the most lucrative benefits which are given to eligible
startups is the exemption of 100% of tax on profit gains for the first three years with
the exception of Minimum Alternate Tax (MAT). MAT is taxable as 18.5% of the book
profit.

For the realization of such benefit, the startup should be registered under the Department of
Industrial Policy and Promotion (DIPP) and should be working towards innovation,
development or commercialization of new product or service providing through intellectual
property. Getting a tax holiday for complete three years can be really useful.

5.  Apply for tenders

Startups can apply for government tenders. They are exempted from the “prior
experience/turnover” criteria applicable for normal companies answering to government
tenders.

6.  R&D facilities

Seven new Research Parks will be providing facilities to startups in the R&D sector

7.   No time-consuming compliances

Various compliances have been simplified for startups to save time and money. Startups shall
be allowed to self-certify compliance (through the Startup mobile app) with 9 labour and 3
environment laws (for list of white industries which are eligible under self-compliance

8.   Tax saving for investors

People investing their capital gains in the venture funds setup by government will get
exemption from capital gains. This will help startups to attract more investors.

9. Choose your investor

After this plan, the startups will have an option to choose between the VCs, giving them the
liberty to choose their investors.

10.  Easy exit

 In case of exit – A startup can close its business within 90 days from the date of application
of winding up
 11.  Meet other entrepreneurs

Government has proposed to hold 2 startup fests annually both nationally and internationally
to enable the various stakeholders of a startup to meet. This will provide huge networking
opportunities.

Startups are being highly encouraged by the government. The benefits enjoyed by them are
immense, which is why more people are setting up startups.

12. Fund Of Funds

Another benefit that is given by the government to entrepreneurs at their initial stage of
development in order to boost up their startup is the fund with an initial corpus of INR
2500 crores and a total corpus of INR 10000 crores over a period of four years. This
funding is under the head of “Funds of Funds (FOF)” which will be directly invested but
would be under the direction of SEBI. It is only applicable to the eligible startups which
are registered under DIPP.

The financial shortage is one of the most common problems faced by entrepreneurs
and in that situation even a slightest financial help may result in great acceleration to
their startup.

13. Capital Gain Tax

Companies whether newly incorporated or having a remarkable existence have their

shares in the market and they generally raise capital or funds from stock sharing and
other things and it is generally a very common way of business with people. Profit
earned by these ways are termed as capital gains and thus are under tax provisions.
One another important tax benefit that has been provided is the exemption of 20% of
capital gain tax to entrepreneurs, that is, tax exemption on getting profit from selling
the capital assets like stock, bonds, shares, etc.

14. Abolition of Angel Investment Tax

Investments are major sources of funding for an entrepreneur. But during the initial stage of a
startup, they lack trust in the market and hence, it is not possible for them to get an
investment from a venture capitalist or loans from banks. So entrepreneurs generally prefer to
seek angel investors. Interest and profit payable to them are generally negotiable. For further
relief, the government has also taken away the angel investment tax, which means, an
investment made by angel investors who are friends or family members not registered as
Venture Capitalist funds will not be taxed.

Under the amendment of Section 56(2) (vii) (b) of Income Tax Act, they have got a liberty to
issue shares to the investors at a higher rate than the fair value without any hassles of
taxation.

The policies of the government which include taxation have been drastically changed under
the budget of 2017-18. The government has introduced a number of policies which mostly
seem to help to the entrepreneurs of the country especially under the startup India program.

Indian regulators find that the very way to help the entrepreneurs is helping them in taxation
hassles. All the above tax benefits and other fund allocations are very vividly helpful to the
startups. However, there are still rooms vacant to help the startups in India. Some of the long-
term demands have been fulfilled by the government while others are left untouched.

 One of the main things is the work environment, which could be fertile for
entrepreneurship, which should have been given more consideration in this startup
India program.
 Also, the amount of exemption in capital gain tax is low as the initial capital gain
is generally low so it is not going to help much effectively. The eligibility
standards that has been created has disappointed many startups as they are not able
to meet up the eligibility standards.
 One thing that should also be emphasized by the government is the interaction of
young entrepreneurs with international investors or business personalities or
technological upgradation in innovative startups in the field of technology.