Unit V

Legal, Regulatory, CSR, Standards, Taxes

1. Legal

1.1 Legal Basics that Every Indian Startup Should Know

Successful startups are ones that are driven by passionate entrepreneurs who are
focussed on building unique solutions that deliver customer delight. While it is very
important to have a strong focus on customers and the market, it is equally critical to have a
good understanding about the basic laws, rules and regulations that are applicable for the
smooth running of the business.
From formalising a founders’ agreement to safeguarding intellectual property to
enforcing business contracts, it is essential that entrepreneurs are aware and up to date with
the latest laws governing their business and market. Here are some important legal basics that
startups and entrepreneurs in India should be aware of before embarking on a business
venture:

1. Formalizing a business structure and founders agreement

The first thing to starting any business is to be clear about the nature and type of the
business. Founders will need to incorporate the business as a specific business type – sole
proprietorship, private limited, public limited, partnership, limited liability partnership etc. It
is very essential to have this clarity at the very beginning as this will be integral to the
business’ overall vision and goals, both short term and long term.
Each business type comes with its own set of legal requirements and regulations and
businesses should pay special attention to them before incorporating the business.
Here is a quick look into the legal implications for the major business types in India:
Business Types
Legal Details Limited
Liability
Company Private Limited
Proprietorship Partnership (LLP) Company
Has to be Has to be
registered with registered with
the Ministry of the Ministry of
Corporate Corporate
No formal Affairs under Affairs under
registration Registration is the LLP Act the Companies
Registration required optional 2008 Act 2013
Not recognised Not recognised Is a separate
as a separate as a separate Is a separate legal entity. The
entity and entity and legal entity. The promoters of the
promoter is promoters are promoters of the company are not
personally personally LLP are not personally liable
responsible for responsible for personally liable towards the
Legal Status all liabilities all liabilities towards the LLP company
 Limited liability
to the extent of Limited
contribution Liability to the
Member Unlimited Unlimited towards to the extent of share
Liability liability liability LLP capital
Minimum of one
Minimum of Minimum of person required
Number of two persons two persons to start a Private
Members Can only have required to start required to start Limited
Required one person a Partnership a LLP Company
Ownership can
be transferred by
Ownership can means of share
Transferability Not transferable Not transferable be transferred transfer
Private Limited
Partnership Company profits
profits are taxed LLP profits are are taxed as per
as per the slabs taxed as per the the slabs
provided under slabs provided provided under
Taxed as Income Tax Act, under Income Income Tax Act,
individual, 1961 plus Tax Act, 1961 1961 plus
based on total surcharge and plus surcharge surcharge and
income of cess as and cess as cess as
Taxation proprietor applicable applicable applicable
Board and
No requirement No requirement No requirement General
Annual for annual for annual for annual Meetings should
Statutory statutory statutory statutory be conducted
Meetings meetings meetings meetings periodically
Must file Must file
Annual Annual
No requirement Statement of Statement of
to file annual No requirement Returns & Returns &
report with the to file annual Solvency and Solvency and
Registrar of report with the Annual Return Annual Return
Companies. Registrar of with the with the
Income tax to be Companies. Registrar every Registrar every
filed on the Income tax to be year. Tax returns year. Tax returns
income of the filed for the must also be must also be
Annual Filings proprietorship partnership filed annually filed annually
Proprietorship Partnership Existence not Existence not
Existence or existence is existence is dependent on dependent on
Survivability dependant on dependant on partners. Can be directors or
 proprietor partners. Can be dissolved shareholders.
dissolved at will voluntarily or by Can be
or upon on the order of the dissolved
death of Company Law voluntarily or by
partner(s) Board Regulatory
Authorities
Foreigners are
allowed in Foreigners are
invest allowed to
with/without the invest
approval of the with/without the
Reserve Bank of approval of RBI
India (RBI) and and other
other applicable applicable
permissions for permissions for
the relevant the relevant
Government of Government of
India authorities India authorities
depending on depending on
Foreigners are Foreigners are the category of the category of
not allowed to not allowed to business they business they
Foreign be sole be part of a are interested to are interested to
Ownership proprietors partnership invest. invest.

Another important question that startup founders should be asking themselves is if

they are looking to raise external funds or bootstrap their business. A private limited
company is the best option for startups looking to raise funds as it provides the required
flexibility to manage external investments and company stock.
Given how dynamic the startup ecosystem in India is, it is also advisable to draft a
Founders Agreement. A Founder’s Agreement is essentially a document that specifies
important details about the founding team and the business, such as, roles, responsibilities,
executive compensation, operational details and exit clauses among others.
The purpose of such an agreement is to reduce the possibility of surprises when the
company is fully functional. Having a clear Founders Agreement with all basic details clearly
laid out forms a solid foundation to start and scale a business. The agreement can also act as
the go to guide should disagreements arise.

2. Applying for business licenses

Licenses are integral to running any business. Depending on the nature and size of
business, several licenses are applicable in India. Knowing the applicable licenses for your
startup and obtaining them is always the best way to start at business.
The lack of relevant licenses can lead to costly lawsuits and unwanted legal battles.
Business licenses are the legal documents that allow a business to operate while business
 registration is the official process of listing a business (along with relevant information) with
the official registrar.
The common license that is applicable to all businesses is the Shop and Establishment
Act which is applicable to all premises where trade, business or profession is carried out.
Other business licenses vary from industry to industry.
For instance an e-commerce company may require additional licenses like VAT
registration, Service Tax Registration, Professional Tax etc. while a restaurant may require
licenses like Food Safety License, Certificate of Environmental Clearance, Prevention of
Food Adulteration Act, Health Trade License etc along with the above mentioned licenses.

3. Understanding taxation and accounting laws

Taxes are part and parcel of every business. There are a broad variety of taxes, such
as, central tax, state tax and even local taxes that may be applicable for certain businesses.
Different business and operating sectors attract different taxes and knowing this beforehand
can prove to be useful.
Recently, the Government of India launched the ‘Startup India’ initiative to promote
startups, and introduced many exemptions and tax holidays for startups and new businesses.
According to this initiative, a startup can avail income tax exemption for a period of 3 years
as well as tax exemptions from capital gains and investments above Fair Market Value. The
conditions that startups need to qualify in order to leverage these exemptions are:
 The startup should not be more than 7 years old (or 10 years for biotech) from the date of
incorporation.
 Is incorporated as a Registered Partnership, Limited Liability Company or Private Limited
Company.
 Turn over in any year should not have exceeded 25 crores.
 The startup should not have been formed by splitting or reconstructing an existing business.
As far as business accounting is concerned, it is good hygiene to maintain proper books of
accounts and audit them from time to time in order to ensure that relevant accounting and
taxation rules are adhered to. Given the small size of business, many startups initially do not
pay close attention to accounting requirements. However, this situation cannot be ignored for
long as it can lead to serious accounting discrepancies.
Having a sound payment and invoicing system for customers is one part of ensuring a clear
accounting system. If you are an online business, take a look at Razorpay’s payment solutions
that ensure easy, effective and secure payment solutions.

4. Adhering to labour laws

Adhering to labour laws are integral to every organization, small or big. When you are
established as a company and have hired people to work for your organization, you are
subject to several labour laws regardless of the size of the organization.
Laws with regards to minimum wages, gratuity, PF payment, weekly holidays,
maternity benefits, sexual harassment, payment of bonus among others will need to be
complied with. It is best to consult a legal counsel to assess the laws applicable to your
startup and ensure that your startup is compliant to the required labour laws.
 With regards to labour laws, startups registered under the Startup India initiative can
complete a self declaration (for nine labour laws) within one year from the date of
incorporation in order and get an exemption from labour inspection. The nine labour laws
applicable under this scheme are:
 The Industrial Disputes Act, 1947
 The Trade Unit Act, 1926
 Building and Other Constructions Workers’ (Regulation of Employment and Conditions of
Service) Act, 1996
 The Industrial Employment (Standing Orders) Act, 1946
 The Inter-State Migrant Workmen (Regulation of Employment and 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.
Startups under this scheme will have to file self-certified return for the second and third year
in order to continue with the exemption.
Startups also often hire consultants or freelancers in addition to full time staff, hence
employee policies should cover all employment details with regards to employees both
fulltime and part time.
Having a well designed employee policy can be a major differentiator for startups. An
attractive employee policy can be the key to attract and retain good talent. Employee policies
can also prove to be the starting point for boosting employee morale and increasing
productivity.

5. Ensuring protection of intellectual property

Intellectual property is the secret sauce for most businesses today, especially for tech
centric businesses. Codes, algorithms and research findings among others are some of the
most common intellectual property owned by organizations. Startups can leverage the
‘Scheme for Startups Intellectual Property Protection’(SIPP) under the Startup India
initiative.
The scheme was set up to nurture and mentor innovative and emerging technologies
among startups and help in the protection and commercialization of intellectual property. For
the effective implementation of the scheme, facilitators have been empanelled by the
Controller General of Patents, Trademarks and Design.
Such facilitators help startups by providing advisory services, assisting in patent filing
and disposal of patent application among other services at a minimum charge. Complete
details with regards to SIPP can be obtained
The Office of the Controller General of Patents, Designs and Trademarks controls all patents
in India and startups can also directly e-file their patents

6. Ensuring effective contract management

Contracts lie at the crux of running any business. A contract is required to ensure the
smooth functioning of work and is a great mechanism to ensure recourse in case of non-
 fulfillment of work. Having basic knowledge about various aspects of contract management
can prove to be useful for entrepreneurs.
As per the Indian Contract Act, 1872, all agreements are contracts if they are made by
the free consent of parties competent to contract, for a lawful consideration with a lawful
object, and are not expressly declared to be void.
Employee contracts are one of the most crucial aspects to be looked into while
starting a venture. Founders many a time collaborate with their own trusted circle of friends
in the beginning and while this ensures a certain ease and efficiency to business operations,
outlining and formalizing employee contracts with details about salary, scope of work and
stock options (if any) with even your first few employees is always recommended. Having
this clarity from the very beginning helps startups reduce risks at a later point in time.
In the early stage of operations, startups also tend to hire contract staff and vendors
and having an effective contract management system will ensure that the right checks are in
place for the timely fulfillment of required work.
Another important contract that startups might find useful to have are NDAs. Startups
often thrive in a crowded market with stiff competition and they often discuss ideas with a
host of people from potential investors to employees to customers.
While this is much needed for the growth of the business, it exposes new startups to
risks like the theft of ideas and other proprietary business information. Ideas that might have
been shared in goodwill might be used inappropriately to the disadvantage of the business.
Hence, to avoid such scenarios, non-disclosure agreements or NDAs need to be
drafted and used by startups while discussing critical business information with people
outside the organization.

7. Details about winding down the business

Closing a company is a difficult call to make for any entrepreneur. When a startup decides to
shut down, all the stakeholders from vendors to employees to customers and investors need to
informed in advance and the whole process must be properly planned and executed in order
to make the exit easy on everyone.

From the legal standpoint, there are basically three ways to shut down a startup:
 Fast Track Exit Mode
 Court or Tribunal Route
 Voluntary Closure
Of all the three ways, the Fast Track Exit Mode is the best suited for startups as it
allows companies to expedite shutdown at a lower cost and a shorter time period. In order to
apply for a fast track exit, a company should (a) not have any assets and liabilities (b) not
have had any business operation for the past year. If these two conditions are met, the
company can be struck off the registrar of the Registrar of Companies (RoC).
If you are looking at winding up your company via the Fast Track Mode, you can get
all details and forms
Another quick way for a company to shut down is through Voluntary Closure;
however, this requires the shareholders and/or creditors of the company to be on the same
page with regards to the details of the closure. While it is an easy route, it might not always
be practical or applicable at all times. The traditional mode of closure via courts or tribunals
is not the best suited for startups as it involves several meetings with various stakeholders
leading to prolonged court proceedings.

In addition to the above stated means, The Insolvency and Bankruptcy Bill, 2015 is a
new closure tool that entrepreneurs can use. Leveraging this bill requires startups to have
simple debt structures, where an insolvency professional is hired to liquidate the assets of the
company within 90 days, in accordance to the ‘Startup India Action Plan’.
If a startup does not wish to operate but also not shut down, it can apply to be a
‘Dormant Company’, that allows a company to stay afloat with minimum compliance.
However, a company dormant for a period of 5 years is automatically struck off from the
RoC.
Adhering to legal requirements is very important for any organisation; knowledge and
compliance to applicable laws is the first step to ensure smooth business operations. Hiring a
professional legal counsel to provide advice, oversee and maintain legal records is one of the
best ways to ensure that your company is always safe and does not face legal complications
and consequences.

n1.2 Big Legal Mistakes Made By Startups

Mistake #1: Not Making the Deal Clear With Co-Founders

Mistake #2: Not Starting the Business as a Corporation or LLC
Mistake #3: Choosing a Company Name That Has Trademark Issues, Domain Name
Problems, or Other Issues
Mistake #4: Not Complying With Securities Laws When Issuing Stock to Angels, Family, or
Friends
Mistake #5: Not Adequately Taking Into Account Important Tax Considerations
Mistake #6: Not Having the Right Legal Counsel
Mistake #7: Not Maintaining Proper Corporate and HR Documentation
Mistake #8: Not Determining Which Permits, Licenses, or Registrations You Will Need for
Your Business
Mistake #9: Not Carefully Considering Intellectual Property Issues
Mistake #10: Not Coming Up With a Great Contract
Mistake# 11: Not Having a Good Terms of Use Agreement and Privacy Policy for Your
Website
Mistake #12: Not Using a Good Form of Employment Agreement or Offer Letter When
Hiring Employees
Mistake #13: Not Requiring All Employees to Sign a Confidentiality and Invention
Assignment Agreement

Mistake #14: Asking Interview Questions That Are Prohibited by Law

Mistake #15: Not Taking the Proper Steps Prior to Firing an Employee
 2. Regulatory:
Platform for Self-certification under labour laws for Startups

1. Government of India has developed a unified Shram Suvidha Portal to facilitate

reporting of inspections and submission of annual returns for compliance under labour laws.
The online system allows Startups to submit their self-certification under the applicable
labour laws to avoid any inspection until 5 years.
The Labour Laws to be covered under this are:
 The Building and Other Constructions Workers’ (Regulation of Employment and Conditions
of Service) Act, 1996
 The Inter-State Migrant Workmen (Regulation of Employment and 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

Further, advisory has been issued to all the State and Union Territories to provide
facility of online self-certification to Startups under the applicable State laws. In this respect,
27 States have already complied with the advisory. 64 Startups have declared their return
online using Shram Suvidha Portal. More details with regard to the portal can be accessed
at Shram Suvidha Portal

2. State of Gujarat has developed an online system to facilitate self-certification or

third party certification under all applicable Labour Laws in the State. The applicant can get
details about the procedure and checklist for the application of self-certification on the State
Startup Portal.
Upon submission, the applicant is issued the registration certificate stating the period
of validity. Further, State has also integrated its self-certification or labour facilitation portal
with the Central Government’s Shram Suvidha Portal to allow exchange of information about
self-certifying Startups,

3. In order to promote Startups ventures with the prime objective to create more
employment opportunities, many initiatives to simplify regulatory provisions, including
compliance by self-certification and filing of self-certified returns have been conceptualized
and rolled out.
To make compliance of Labour Laws easier, self- certification facility has been made
available under the 'Self Certification Scheme' of the Labour Department, Government of
Rajasthan. Enterprises may apply and submit online self-declaration through online portal of
the
department, "Labour Department Management System" (LDMS). Once opted for the scheme,
the same shall be valid for 5 years, provided that entrepreneur files annual return. Facility of
filing single online return under Labour Laws is also provided on this portal.
The Startups like all other establishments can avail the option of self-certification in
place of inspection and once inspected they would not be inspected for next three years, if no
complaints are received.
Startups may avail facility of Self Certification Scheme of the department by
submitting online self-declaration and also file online single return through online portal
LDMS (www.ldms.rajasthan.gov.in). User manual and video tutorial available at iStart
Rajasthan.

Support to Startups Working in New or Disruptive Areas

Government of Rajasthan has provided an online facility for establishments to self-certify

compliance under Labour laws.

Details available at: http://www.labour.rajasthan.gov.in/Self_Certification.aspx

2.1 Support to Startups working in new or disruptive areas

1. NITI Aayog organized "Champions of Change" initiative which is an effort to bring

together diverse strengths for the benefit of the nation and society. Hon'ble Prime Minister
interacted with Young Entrepreneurs and Startups at the "Champions of Change" initiative
organised by NITI Aayog on 17.08.2017.

Six groups of Young Entrepreneurs made presentations before the PM on themes such
as - Soft Power: Incredible India 2.0; Education and Skill Development; Health and
Nutrition; Energizing a sustainable tomorrow; and Digital India; New India by 2022.
Prime Minister Narendra Modi and NITI Aayog have met over 200 startup
entrepreneurs. The event aims at creating a dialogue between the government and startups in
order to get them in sync with the mission of a ‘New India by 2022’. The groups of 35 people
brainstormed on the six chosen themes mentioned above. The groups’ objective was to
brainstorm and come out with the most impactful suggestions on the topics. The action points
had to focus on job creation, income enhancement, technology disruption and innovation,
ease of doing business and governance and policy. Details of the event available on NITI
Aayog website.

2. Among all the online platforms delivering products/ services online on a click of a
button, buying medicines online is the latest trend amongst the Indian patients and
consumers. With the increasing trend, number of online pharmacies have started operations.
However, there is lack of proper regulatory checks and balances for exercising regulatory
control over e-pharmacies vis-à-vis brick and mortar pharmacies.
 In order to address this issue Startup India organized a roundtable with all the major
e-pharmacies Startups on 26th May 2017 to discuss current regulatory challenges in the
sector. Major State Governments where the e-pharmacies are located, Drugs Controller
General of India, Ministry of Health & Family Welfare were invited to brainstorm solutions
to remove hassles for innovative businesses. The following issues were discussed during the
roundtable on e-pharmacies:
 No Clarity on the Marketplace Model & State-Level Regulatory Checks
 Issues Related to Prescriptions
 Need for Reclassification of Drugs
 GST and FDI Related Proposals

Accordingly, the issues were discussed between all the departments concerned and
draft rules on Sale of Drugs Online through E-Pharmacies were released by Department of
Health and Family Welfare on 28th August 2018

2.2 Policies or Regulations Regarding Adoption of Disruptive Technologies or Business

models

1. Government of Karnataka approved ‘Electric Vehicle (EV) and Energy Storage

Policy 2017’ to help the state become a hub for production of alternative fuel vehicles and
reduce dependency on fossil fuels. The State Government achieved the feat with help from
key industry players, taxi aggregators and through roundtables organized by Carnegie India
and a series of workshops held across four to five months. The draft policy can be
accessed here.
Norway has often been cited as a model example of how Governments can aid the process of
developing an EV ecosystem with more than 100,000 such vehicles in a country of just 5.2
million people. All EVs are exempt from non-recurring vehicle taxes, including road tax and
VAT. They are also exempt from paying any toll or parking fee.
The key provisions of the Karnataka Government’s EV policy include the development of
manufacturing zones with readymade infrastructural capabilities; establishment of charging
infrastructure with the aid of private investment; exemption from taxes on all-electric
transport and non-transport vehicles including e-rickshaws and e-carts; and subsidize the use
of charging and battery swapping stations, among others.

2. Cyber Security is among the leaders in emerging technologies in the world. Dealing
with the security of Cyberspace, the virtual environment where people and software interact
over a complex web of computer networks, Cyber Security is on the path towards gaining
increasing prominence in a technology driven future.
Government of Telangana announced policy framework on cyber security for the State. The
Cyber security Policy Framework holds several other frameworks that are intended to provide
a holistic and complete solution the cyber security threat. The four pillars that hold up the
State cyber security policy framework are as under:
 In 2018, Government of Telangana and Data Security Council of India partnered to
set-up cyber security Centre of Excellence (COE). The CoE based on Public-Private-
Partnership model will accelerate and strengthen the ecosystem by focusing on strategic areas
including, innovation, entrepreneurship and capability building. The detailed policy is
available on State portal.

3. In February 2018, Maharashtra became the first Indian state to announce a Fintech
policy. To give an impetus to the FinTech sector in Mumbai, the Directorate of Information
Technology, Government of Maharashtra has approved the policy incentives that will apply
to all FinTech start-ups. The State has also established “Mumbai FinTech Hub” in Mumbai
Metropolitan Region as a focal point for FinTech activity within the State of Maharashtra. It
provides an ecosystem encompassing the entire infrastructure, organizations and people
within the hub, as well as how those elements are structured and engage with each other to
nurture innovation and entrepreneurial spirit.
FinTech start-ups are establishments that use technology and innovative business models in
delivering of financial products and services and having annual turnover up to ₹25 Crores.
The FinTech start-ups must have a registered office in the State of Maharashtra to be eligible
to avail the benefits under the policy. The incentives provided under this policy will be over
and above any other incentives that maybe applicable under the State's Start up and
Innovation Policy.
The key features of the policy are:
 The Government of Maharashtra will establish physical infrastructure for providing end-to-
end support to all its ecosystem players. This will be in the form of a co-working space of
minimum 10,000 sq.ft.
 The Government of Maharashtra will create a Fintech corpus fund of Rs. 250 crore over the
next three years to fund the fiscal incentives to FinTech start-ups and operational expenses of
Industry Sandbox and the Global FinTech hub
 An Industry sandbox will provide a controlled and legal testing solution space where start-
ups /banks/technology companies can test innovative products, services, business models and
delivery mechanisms in the real testing environment

3. Corporate Social Responsibility

3.1 Corporate Social Responsibility in India
India is the first country in the world to make corporate social responsibility (CSR)
mandatory, following an amendment to the Companies Act, 2013 in April 2014. Businesses
can invest their profits in areas such as education, poverty, gender equality, and hunger as
part of any CSR compliance.

The amendment notified in the Companies Act, 2013 requires companies with a net worth of
INR 5 billion (US$70 million) or more, or an annual turnover of INR 10 billion (US$140
million) or more, or net profit of INR 50 million (US$699,125) or more, to spend 2 percent of
their average net profits of three years on CSR.

Prior to that, the CSR clause was voluntary for companies, though it was mandatory to
disclose their CSR spending to shareholders. CSR includes but is not limited to the following:

 Projects related to activities specified in the Companies Act; or

 Projects related to activities taken by the company board as recommended by the CSR
Committee, provided those activities cover items listed in the Companies Act.

Businesses must note that the expenses towards CSR are not eligible for deduction in the
computation of taxable income. The government, however, is considering a re-evaluation of
this provision, as well as other CSR provisions recently introduced under the Companies
(Amendment) Act, 2019 (“the Act”).

CSR amendments under the Companies (Amendment) Act, 2019

Until now, if a company was unable to fully spend its CSR funds in a given year, it could
carry the amount forward and spend it in the next fiscal, in addition to the money allotted for
that year.

The CSR amendments introduced under the Act now require companies to deposit the
unspent CSR funds into a fund prescribed under Schedule VII of the Act within the end of the
fiscal year. This amount must be utilized within three years from the date of transfer, failing
which the fund must be deposited in to one of the specified funds.

The new law prescribes for a monetary penalty as well as imprisonment in case of non-
compliance. The penalty ranges from INR 50,000 (US$700) to INR 2.5 million (US$35,000)
whereas the defaulting officer of the company may be liable to imprisonment for up to three
years, or a fine up to INR 500,000 (US $7,023), or both.

The government, however, is reviewing these rules after the industry objected to the strict
provisions, especially with respect to the jail terms for CSR violations, and is yet to
operationalize them.

3.2 The methodology of CSR

CSR is the procedure for assessing an organization’s impact on society and evaluating their
responsibilities. It begins with an assessment of the following aspects of each business:

 Customers;
 Suppliers;
 Environment;
  Communities; and,
 Employees.

The most effective CSR plans ensure that while organizations comply with legislation, their
investments also respect the growth and development of marginalized communities and the
environment. CSR should also be sustainable – involving activities that an organization can
uphold without negatively affecting their business goals.

Organizations in India have been quite sensible in taking up CSR initiatives and integrating
them into their business processes.

It has become progressively projected in the Indian corporate setting because organizations
have recognized that besides growing their businesses, it is also important to shape
responsible and supportable relationships with the community at large.

Companies now have specific departments and teams that develop specific policies,
strategies, and goals for their CSR programs and set separate budgets to support them.

Most of the time, these programs are based on well-defined social beliefs or are carefully
aligned with the companies’ business domain.

3.3 CSR trends in India

Since the applicability of mandatory CSR provision in 2014, CSR spending by corporate
India has increased significantly. In 2018, companies spent 47 percent higher as compared to
the amount in 2014-15, contributing US$1 billion to CSR initiatives, according to a survey.

Listed companies in India spent INR 100 billion (US$1.4 billion) in various programs
ranging from educational programs, skill development, social welfare, healthcare, and
environment conservation, while the Prime Minister’s Relief Fund saw an increase of 139
percent in CSR contribution over last one year.

The education sector received the maximum funding (38 percent of the total) followed by
hunger, poverty, and healthcare (25 percent), environmental sustainability (12 percent), rural
development (11 percent). Programs such as technology incubators, sports, armed forces,
reducing inequalities saw negligible spends.

Taking into account the recent amendments to CSR provisions, industry research estimates
CSR compliance to improve and range between 97 to 98 percent by FY 2019-20.
3.4 Examples of CSR in India

Tata Group

The Tata Group conglomerate in India carries out various CSR projects, most of which are
community improvement and poverty alleviation programs. Through self-help groups, it has
engaged in women empowerment activities, income generation, rural community
development, and other social welfare programs. In the field of education, the Tata Group
provides scholarships and endowments for numerous institutions.

The group also engages in healthcare projects, such as the facilitation of child education,
immunization, and creation of awareness of AIDS. Other areas include economic
empowerment through agriculture programs, environment protection, providing sports
scholarships, and infrastructure development, such as hospitals, research centers, educational
institutions, sports academy, and cultural centers.

Ultratech Cement

Ultratech Cement, India’s biggest cement company is involved in social work across 407
villages in the country aiming to create sustainability and self-reliance. Its CSR activities
focus on healthcare and family welfare programs, education, infrastructure, environment,
social welfare, and sustainable livelihood.

The company has organized medical camps, immunization programs, sanitization programs,
school enrollment, plantation drives, water conservation programs, industrial training, and
organic farming programs.

Mahindra & Mahindra

Indian automobile manufacturer Mahindra & Mahindra (M&M) established the K. C.

Mahindra Education Trust in 1954, followed by Mahindra Foundation in 1969 with the
purpose of promoting education. The company primarily focuses on education programs to
assist economically and socially disadvantaged communities.

Its CSR programs invest in scholarships and grants, livelihood training, healthcare for remote
areas, water conservation, and disaster relief programs. M&M runs programs such as Nanhi
Kali focusing on education for girls, Mahindra Pride Schools for industrial training, and
Lifeline Express for healthcare services in remote areas.

ITC Group
ITC Group, a conglomerate with business interests across hotels, FMCG, agriculture, IT, and
packaging sectors has been focusing on creating sustainable livelihood and environment
protection programs. The company has been able to generate sustainable livelihood
opportunities for six million people through its CSR activities.

Their e-Choupal program, which aims to connect rural farmers through the internet for
procuring agriculture products, covers 40,000 villages and over four million farmers. It’s
social and farm forestry program assists farmers in converting wasteland to pulpwood
plantations. Social empowerment programs through micro-enterprises or loans have created
sustainable livelihoods for over 40,000 rural women.

4. Standards

4.1 Setting Company Standards

You have personal values, beliefs, and performance benchmarks. Your business also has
these characteristics and they are referred to as company standards. Think of standards as
your business personality and vision coupled with the rules you live and work by. Your small
business standards will likely mirror your personal standards, and your customers,
clients, and employees will form an opinion about your business – and your brand – based on
these values.

4.2 What are standards?

Your standards define how your company acts, which, in turn, builds trust in your brand.
They can be guidelines that describe quality, performance, safety, terminology, testing, or
management systems, to name a few. They can comply with authoritative agencies or
professional organizations and be enforceable by law, such as required medical degrees for
doctors or credentials for financial planners. Or they can be voluntary rules you establish to
create confidence among your clients that your business operates at a high and consistent
quality level, such as a restaurant only using the highest quality, locally-sourced ingredients.

Standards must align with your mission, business objectives, and organizational leadership,
and be implemented consistently across your enterprise. Employees need to buy into the
value of adhering to standards so everyone is pulling in the same direction and reinforcing
your brand.

4.3 Controlling and measuring standards

Standards are what your business aspires to, but they don’t guarantee performance. You need
to create processes to control how your standards are implemented, and measure and evaluate
how they help your business grow. Written guidelines, technical specifications, product
inspection processes, management and financial audits, and even customer surveys can be
effective performance indicators and help you determine if you’re meeting your standards, or
if the standards need to be tweaked in some way.

4.4 tips to startups about the use of standards

Johan Dahlgren, section manager, Information Technology & Management Systems

at SIS, gives tips on how startups can use standards or participate in standardization in the
latest issue of the Swedish magazine Perspective. “Standards and standardization may not be
the first thing that comes to mind as a startup. But there are many benefits and used correctly,
they can be really strategic tools ", he says.

1. Market and sell products or services

As a startup, it is important to start selling your products or services as soon as possible.

Here, standards can help increase trust, create consistency and ensure interoperability,
something that can both be used in marketing and help out in the sales process.

2. Find new partnerships

At the Swedish Institute for Standards, we run approximately 500 groups that work with
standardization. In these groups there are often many experts in a given field. As a startup,
participating in standardization can therefore be seen as an opportunity to create new contacts
and establish new partnerships.

3. Build on an existing framework

Shorten lead times for development by building on what already exists. By using standards as
a basis for the offer, you speed up the development and at the same time ensure that there is a
market. Standards are often developed by world leading experts in their field and often form a
good basis for further development.

4. Shortcut to compliance

In some areas, the use of standards can speed up the work of complying with relevant laws,
regulations and industry practices. They often provide practical guidance and can be used to
ensure the function, safety, environment, health and quality of your processes, products or
services.

There are many good examples of when innovators and startups have used standards and
standardization to get a flying start. Visit the link below to read more.
4.5 Challenges of Standards & Conformity Assessment

INTRODUCTION
With the advent of WTO regime in 1995, the tariff and quantitative barriers in international
trade have gone down and what are called non-tariff barriers have come to occupy the centre
stage. The major barriers among nontariff barriers are acknowledged to be those related
to standards and conformity assessment.
The WTO regime recognizes that the governments have a right to protect their
populace on grounds such as health and safety and therefore can impose product
requirements by law – called technical regulations or sanitary and phytosanitary (SPS)
measures in agrifood sector. In fact, it prescribes under the Agreement on Technical
Barriers to Trade, commonly called the TBT Agreement, grounds such as health (food,
drugs, medical devices), safety (toys, electrical appliances, LPG
cylinders), environment (emission levels in vehicles, environmental laws, lead content in
paints), deceptive trade practices (adulteration in cement or gold jewellery) and national
security (telecom equipment) for regulation i.e. product requirements imposed by law.
This has led to rise in the number of technical regulations, national and international
voluntary standards, and conformity assessment procedures which apply across all
sectors to products, services, processes, management systems or personnel. Generally, these
are introduced to meet the legitimate requirements of quality and safety that consumers,
businesses, regulators and other stakeholders demand in the case of goods and services,
whatever their country of origin. It is vital, not only for individuals and organisations but for
national and international economic health, that products and services can cross borders to
meet global demand without causing undue risk to the health and safety of individuals or the
environment.
The WTO regime has thus created two distinct sectors: sectors amenable
to Technical Regulations/SPS measures and sectors driven by Standards (which now are
defined to be per se Voluntary). Technical Regulations/SPS measures are the responsibility
of the Government which are made in the interest of the country and its people whereas
Standards, which are voluntary, are driven by market, industry and other stakeholders.
Any business, including startups, therefore need to not only be aware of the regulations
and standards which apply to the sector in which they operate but also assimilate these
in the product or service at the design stage itself so that their product or service meets
the regulatory requirements, which are mandatory, and standards prevalent in the
market to survive and succeed.
REGULATIONS
Technical Regulations lay down requirements for product characteristics or their related
processes and production methods, compliance to which is mandatory. Regulations have to
be the same for imports as well as locally manufactured goods based on the principle
of national treatment, so that imports are not blocked due to differential regulations. WTO
encourages countries to adopt international standards as Technical Regulations/SPS measures
so as to avoid barriers and most developed countries adopt International Standards as
Technical Regulations/SPS measures. Standards higher than International Standards can be
adopted as regulations by giving proper scientific justification and this provision is currently
utilized.by many developed countries increasing the challenge for our industry.
First and foremost challenge is to comply with domestic regulations depending on the
sector one operates in. Typical examples are sectors such as Food, Drugs, Electrical
Appliances, Electronics and IT Goods, Cement, Telecom products and Steel products. In
many sectors, regulations are non existent in India but currently lead by the Department of
Commerce, an exercise is on to bridge this deficit in regulations. Sectors such as Machinery,
Toys, Medical Devices, Personal Protective Equipment, and Chemicals are in the process of
being regulated. As a thumb rule, if one’s product has health or safety implications, he
should expect to be regulated.
The next challenge for the Indian industry is to comply with regulations of the importing
countries if it wishes to export. This challenge is compounded in some sectors such as Food
and Pharma, where domestic regulations are short of International Standards or Machinery or
Medical Devices or Chemicals where India is currently unregulated. Goods will be denied
entry if these regulations are not complied with and typically these are more stringent than
domestic regulations requiring extra effort by the Industry for compliance. While Pharma,
Automotive and Seafood sectors are successful examples where India has accessed global
markets, industry in most other sectors struggles to comply with the regulations of the
importing countries.
VOLUNTARY STANDARDS
The next challenge is that of voluntary standards prevalent in the market. Standards provide
the rules, guidelines or characteristics for products or related processes and production
methods and compliance to these is voluntary as opposed to compliance to Technical
Regulations which is mandatory.
Voluntary Standards are typically developed by the National Standards Bodies that are
mostly governmental in developing countries and yet standards developed by them are
voluntary. In most developed countries, standards bodies are private bodies having strong
connect with industry. The Bureau of Indian Standards (BIS) is the national standards body
of India with over 20000 standards and any entrepreneur setting up a business is well advised
to look at BIS standards available for his product or service as first point of reference, if its
not a regulated sector.
In many sectors, even in regulated sectors, buyers demand certifications to these standards
and therefore it becomes necessary for Industry to adopt these. Voluntary Standards include
international standards of the International Organization for Standardization
(ISO) and International Electrotechnical Commission (IEC) such as ISO 9001 for quality
management systems (QMS), ISO 14001 for environment management systems (EMS), ISO
45001 for occupational health & safety management systems (OHSMS), ISO 27001 for
information security management systems etc and these are a growing tribe.
There is another category of what are called the Private Standards, now increasingly being
called Voluntary Sustainability Standards, which are developed by stakeholders like
retailers, industry, non governmental organizations etc. These standards may offer protection
against liability which is important even as global sourcing grows and/or they may address
concerns about social issues such as child labour, fair wages, workplace safety etc.
or environmental compliance or even food safety. Some examples of such standards are
Global G.A.P for agri produce, Forest management (FSC/PEFC) for legality of wood and
sustainable forest management, WRAP for Textiles, BRC/IFS/FSSC 22000 for Food and
other Social Standards like SA 8000.
Some private standards are also industry driven like automotive sector (IATF 16949), TL
9000 in Telecom, AS 9100 in Aerospace which are driven by the need to upgrade suppliers
to major players and OEMs in these sectors and if one operates in these sectors, they have
become almost obligatory.
There are Indian schemes available now e.g IndGAP or IndiaHACCP by QCI or Forest
management certification by NCCF at much lesser cost and if any of these are benchmarked
internationally (e.g. NCCF), they facilitate exports as well.

CONFORMITY ASSESSMENT
Meeting the regulations and standards as described above is however not enough. Industry
has to gear up to face challenges beyond compliance to Technical Regulations/SPS Measures
and Standards. It is no longer enough to merely comply with these but the manner of
demonstrating compliance to these is also equally important. There are a variety of
conformity assessment models or routes available starting from the least stringent one - self
declaration of conformity (SDoC), used extensively by the European Commission in its
regulations for CE Mark to the intensive third party assessment of the kind BIS uses for
example in compulsory certification of bottled water or cement etc.
Conformity assessment is growing in importance both in regulated as well as voluntary
sectors. A WTO study in 2016 of Specific Trade Concerns (STCs) raised in the TBT
Committee indicated that only 30% of the STCs are based on Standards while 70% of the
STCs are on Conformity assessment procedures. This is understandable because more
and more countries today are adopting International Standards and standards then cease to be
an issue; however their Conformity assessment procedures differ and will continue to differ
since there is not a single model internationally accepted.
Conformity assessment is demonstration that specified requirements relating to
a product, process, system, person or body are fulfilled and includes activities such
as testing, inspection and certification, as well as the accreditation of conformity
assessment bodies.
A typical example of how compliance to International Standards alone is not enough and
that the conformity assessment process is equally important , is the case of Tyres
manufactured in India, complying to International Standards, regulated in India by BIS and
yet not accepted by a small country like Ecuador, only because Ecuador has prescribed a
certificate of conformity from a Certification Body accredited by the National Accreditation
Body of the country of origin, which in this case happens to be the National Accreditation
Board for Certification Bodies (NABCB) and BIS is not accredited by NABCB. Similarly,
several other products are not going to Ecuador for the same reason – absence of Certification
Bodies accredited by the National Accreditation Body.

RECOGNITION OF CONFORMITY ASSESSMENT

 In order that inspection, certification or testing of one country is recognized by another
country, it is necessary that there is a system whereby there is confidence in the conformity
assessment system of each country. Such confidence is generated through the process of
accreditation based on international standards. This has been provided for in the TBT
Agreement, as follows:

“6.1.1 adequate and enduring technical competence of the relevant conformity assessment
bodies in the exporting Member, so that confidence in the continued reliability of their
conformity assessment results can exist; in this regard, verified compliance, for instance
through accreditation, with relevant guides or recommendations issued by international
standardizing bodies shall be taken into account as an indication of adequate technical
competence;”
ROLE OF ACCREDITATION
As the importance of conformity assessment has grown with the regulators increasingly
relying on independent, third party inspection and certification bodies or labs to carry out
inspection/certification/testing on their behalf and number of voluntary schemes coming up
globally who needed third party bodies to scale up adoption of their standards, a need arose
of assuring competence of conformity assessment bodies and facilitating cross border
acceptance of test reports, inspection reports and certifications.
This has led to the development a system of accreditation to establish the technical
competence of inspection/certification bodies and labs for which ISO has laid down a number
of standards.
A voluntary system of accreditation has developed worldwide under the aegis of
the International Accreditation Forum (IAF) for certification and International
Laboratory Accreditation Cooperation (ILAC) for inspection and testing and India
responded to these developments by setting up a national accreditation system in the form of
the National Accreditation Board for Certification Bodies (NABCB) and the National
Accreditation Board for Testing & Calibration Laboratories (NABL). NABCB is
undertaking accreditation of certification and inspection bodies as per applicable
international standards while NABL is devoted to accreditation of testing, calibration and
medical laboratories and related bodies. NABCB is a member of both IAF and ILAC
and NABL is a member of ILAC and both have achieved international equivalence for
their accreditations.
ISO 17000 defines accreditation as “third party attestation related to conforming
assessment body conveying formal demonstration of its competence to carry out specific
conformity assessment tasks”.
Accreditation is generally carried out as per common international standards of ISO, some
of which are listed below:
 Laboratories as per ISO 17025
 Inspection Bodies as per ISO 17020
 Product (which includes Process) certification bodies as per ISO 17065
 Management systems such as ISO 9001 certification bodies as per ISO 17021-1
 EMERGING GLOBAL SCENARIO
In view of the foregoing, it is clear what the emerging technical infrastructure would look like
and roles are becoming clearly defined as follows:.

 Government at the apex to enact legislation and make policies;

 Regulatory bodies to enforce the law on day to day basis Regulators can be sector specific
like food, drugs etc.; e.g. FSSAI, CDSCO in India;
 Standards bodies to make Voluntary Standards and may provide standards to regulators
also; BIS, TSDSI in telecom, IRC for roads and bridges
 Accreditation bodies to confirm the technical competence of Conformity Assessment Bodies
(CABs); NABCB and NABL in India;
 Conformity assessment bodies to support regulations, voluntary standards and quality
assurance by verifying conformity to various standards, regulations etc;
 Manufacturers and service providers to provide goods and services which are reliable with
global acceptance, and
 Common consumers, who are the recipients of goods and services.

6.Taxes
6.1 Tax System
Introduction
Taxes are levied by governments on their citizens to generate income for undertaking projects
to boost the economy of the country and to raise the standard of living of its citizens. The
authority of the government to levy tax in India is derived from the Constitution of India,
which allocates the power to levy taxes to the Central and State governments. All taxes levied
within India need to be backed by an accompanying law passed by the Parliament or the State
Legislature.

Types of Taxes
Taxes are of two distinct types, direct and indirect taxes. The difference comes in the way
these taxes are implemented. Some are paid directly by you, such as the dreaded income tax,
wealth tax, corporate tax etc. while others are indirect taxes, such as the value added tax,
service tax, sales tax, etc.
1. Direct Taxes
2. Indirect Taxes

But, besides these two conventional taxes, there are also other taxes that have been brought
into effect by the Central Government to serve a particular agenda. ‘Other taxes’ are levied
on both direct and indirect taxes such as the recently introduced Swachh Bharat Cess tax,
Krishi Kalyan Cess tax, and infrastructure Cess tax among others.
1. Direct Tax
Direct tax, as stated earlier, are taxes that are paid directly by you. These taxes are levied
directly on an entity or an individual and cannot be transferred onto anyone else. One of the
bodies that overlooks these direct taxes is the Central Board of Direct Taxes
(CBDT) which is a part of the Department of Revenue. It has, to help it with its duties, the
support of various acts that govern various aspects of direct taxes.
Some of these acts are:
Income Tax Act:
This is also known as the IT Act of 1961 and sets the rules that govern income tax in India.
The income, which this act taxes, can come from any source like a business, owning a house
or property, gains received from investments and salaries, etc. This is the act that defines how
much the tax benefit on a fixed deposit or a life insurance premium will be. It is also the act
that decides how much of your income can you save through investments and what the slab
for the income tax will be.
· Wealth Tax Act:
The Wealth Tax Act was enacted in 1951 and is responsible for the taxation related to the net
wealth of an individual, a company or a Hindu Unified Family. The simplest calculation of
wealth tax was that if the net wealth exceeded Rs. 30 lakhs, then 1% of the amount that
exceeded Rs. 30 lakhs was payable as tax. It was abolished in the budget announced in 2015.
It has since been replaced with a surcharge of 12% on individuals that earn more than Rs. 1
crore per annum. It is also applicable to companies that have a revenue of over Rs. 10 crores
per annum. The new guidelines drastically increased the amount the government would
collect in taxes as opposed the amount they would collect through the wealth tax.
· Gift Tax Act:
The Gift Tax Act came into existence in 1958 and stated that if an individual received gifts,
monetary or valuables, as gifts, a tax was to be to be paid on such gifts. The tax on such gifts
was maintained at 30% but it was abolished in 1998. Initially if a gift was given, and it was
something like property, jewellery, shares etc. it was taxable. According to the new rules gifts
given by family members like brothers, sister, parents, spouse, aunts and uncles are not
taxable. Even gifts given to you by the local authorities is exempt from this tax. How the tax
works now is that if someone, other than the exempt entities, gifts you anything that exceeds
a value of Rs. 50,000 then the entire gift amount is taxable.
· Expenditure Tax Act:
This is an act that came into existence in 1987 and deals with the expenses you, as an
individual, may incur while availing the services of a hotel or a restaurant. It is applicable to
all of India except Jammu and Kashmir. It states that certain expenses are chargeable under
this act if they exceed Rs. 3,000 in the case of a hotel and all expenses incurred in a
restaurant.
· Interest Tax Act:
The Interest Tax Act of 1974 deals with the tax that was payable on interest earned in certain
specific situations. In the last amendment to the act it was stated that the act does not apply to
interest that was earned after March 2000.

Below are some examples for all the different types of direct taxes:
Examples of Direct Taxes
These are some of the direct taxes that you pay
a) Income Tax:
This is one of the most well-known and least understood taxes. It is the tax that is levied on
your earning in a financial year. There are many facets to income tax, such as the tax slabs,
taxable income, tax deducted at source (TDS), reduction of taxable income, etc. The tax is
applicable to both individuals and companies. For individuals, the tax that they have to pay
depends on which tax bracket they fall in. This bracket or slab determines the tax to be paid
based on the annual income of the assessee and ranges from no tax to 30% tax for the high
income groups.
The government has fixed different taxes slabs for varied groups of individuals, namely
general taxpayers, senior citizens (people aged between 60 to 80, and very senior citizens
(people aged above 80).
b) Capital Gains Tax:
This is a tax that is payable whenever you receive a sizable amount of money. It could be
from an investment or from the sale of a property. It is usually of two types, short term capital
gains from investments held for less than 36 months and long term capital gains from
investments held for longer than 36 months. The tax applicable for each is also very different
since the tax on short term gains is calculated based in the income bracket that you fall in and
the tax on long term gains is 20%. The interest thing about this tax is that the gain doesn’t
always have to be in the form of money. It could also be an exchange in kind in which case
the value of the exchange will be considered for taxation.

c) Securities Transaction Tax:

It’s no secret that if you know how to trade properly on the stock market, and trade in
securities, you stand to make a substantial amount of money. This too is a source of income
but it has its own tax which is known as the Securities Transaction Tax . How this tax is
levied is by adding the tax to the price of the share. This means that every time you buy or
sell shares, you pay this tax. All securities traded on the Indian stock exchange have this tax
attached to them.

d) Perquisite Tax:
Perquisites are all the perks or privileges that employers may extend to employees. These
privileges may include a house provided by the company or a car for your use, given to you
by the company. These perks are not just limited to big compensation like cars and houses,
they can even include things like compensation for fuel or phone bills. How this tax is levied
is by figuring out how that perk has been acquired by the company or used by the employee.
In the case of cars, it may be so that a car provided by the company and used for both
personal and official purposes is eligible for tax whereas a car used only for official purposes
is not.

e) Corporate Tax:
Corporate tax is the income tax that is paid by companies from the revenue they earn. This
tax also comes with a slab of its own that decides how much tax the company has to pay. For
example a domestic company, which has a revenue of less than Rs. 1 crore per annum, won’t
have to pay this tax but one that has a revenue of more than Rs. 1 crore per annum will have
to pay this tax. It is also referred to as a surcharge and is different for different revenue
brackets. It is also different for international companies where the corporate tax may be
41.2% if the company has a revenue of less than Rs. 10 million and so on.
There are four different types of corporate tax. They are:

· Minimum Alternative Tax:

Minimum Alternative Tax, or MAT, is basically a way for the Income Tax Department to get
companies to pay a minimum tax, which currently stands at 18.5%. This form of tax was
brought into effect through the introduction of Section 115JA of the Income Tax Act.
However, companies involved in infrastructure and power sectors are exempt from paying
MAT.
Once a company pays the MAT, it can carry the payment forward and set-off (adjust) against
regular tax payable during the subsequent five-year period subject to certain conditions.

· Fringe Benefit Tax:

Fringe Benefit Tax, or FBT, was a tax which applied to almost every fringe benefit an
employer provided to their employees. In this tax, a number of aspects were covered. Some
of them include:
i) Employer’s expense on travel (LTA), employee welfare, accommodation, and
entertainment.
ii) Any regular commute or commute related expense provided by an employer.
iii) Employer’s contribution to a certified retirement fund.
iv) Employer Stock Option Plans (ESOPs).
FBT was started under the Indian government’s stewardship from April 1, 2005. However,
the tax was later scrapped in 2009 by the-then Finance Minister Pranab Mukherjee during the
2009 Union Budget session.
· Dividend Distribution Tax:
Dividend Distribution Tax was introduced after the end of 2007’s Union Budget. It is
basically a tax levied on companies based on the dividend they pay to their investors. This tax
is applicable on the gross or net income an investor receives from their investment. Currently,
the DDT rate stands at 15%.
· Banking Cash Transaction Tax:
Banking Cash Transaction Tax is yet another form of tax that has been abandoned by the
Indian government. This form of taxation was operation from 2005-2009 until the then FM
Pranab Mukherjee nullified the tax. This tax suggested that every bank transaction (debit or
credit) would be taxed at a rate of 0.1%.
2. Indirect Tax:
By definition, indirect taxes are those taxes that are levied on goods or services. They differ
from direct taxes because they are not levied on a person who pays them directly to the
government, they are instead levied on products and are collected by an intermediary, the
 person selling the product. The most common examples of indirect tax Indirect tax can
be VAT (Value Added Tax), Taxes on Imported Goods, Sales Tax, etc. These taxes are
levied by adding them to the price of the service or product which tends to push the cost of
the product up.
Examples of Indirect Taxes:
These are some of the common indirect taxes that you pay.
a) Sales Tax:
As the name suggests, sales tax is a tax that is levied on the sale of a product. This product
can be something that was produced in India or imported and can even cover services
rendered. This tax is levied on the seller of the product who then transfers it onto the person
who buys said product with the sales tax added to the price of the product. The limitation of
this tax is that it can be levied only ones for a particular product, which means that if the
product is sold a second time, sales tax cannot be applied to it.
Basically, all the states in the country follow their own Sales Tax Act and charge a
percentage indigenous to themselves. Besides this, a few states also levy other additional
charges like turnover tax, purchase tax, works transaction tax, and the like. This is also the
reason why sales tax is one of the largest revenue generators for various state governments.
Also, this tax is levied under both central and state legislations.
b) Service Tax:
Like sales tax is added to the price of goods sold in India, so is service tax added to services
provided in India. In the reading of the budget 2015, it was announced that the service tax
will be raised from 12.36% to 14%. It is not applicable on goods but on companies that
provide services and is collected every month or once every quarter based on how the
services are provided. If the establishment is an individual service provider then the service
tax is paid only once the customer pays the bills however, for companies the service tax is
payable the moment the invoice is raised, irrespective of the customer paying the bill.
An important thing to remember is that since the service at a restaurant is a combination of
the food, the waiter and the premises themselves, it is difficult to pin point what qualifies for
service tax. To remove any ambiguity, in this regard, it has been announced that the service
tax in restaurants will be levied only on 40% of the total bill.
 GST - Goods and Service Tax:
The Goods and Services Tax (GST) is the largest reform in India’s indirect tax structure since
the market started opening up about 25 years ago. The GST is a consumption-based tax, as it
is applicable where consumption takes place. The GST is levied on value-added goods and
services at each stage of consumption in the supply chain. The GST payable on the
procurement of goods and services can be set off against the GST payable on the supply of
goods and services, the merchant will pay the applicable GST rate but can claim it back
through the tax credit mechanism.
c) Value Added Tax:
VAT, also known as commercial tax is not applicable on commodities that are zero rated (eg.
food and essential drugs) or those that fall under exports. This tax is levied at all the stages of
the supply chain, right from the manufacturers, dealers and distributors to the end user.
The value added tax is a tax that is levied at the discretion of the state government and not all
states implemented it when it was first announced. The tax is levied on various goods sold in
the state and the amount of the tax is decided by the state itself. For example in Gujrat the
government split all the good into various categories called schedules. There are 3 schedules
and each schedule has its own VAT percentage. For Schedule 3 the VAT is 1%, for schedule
2 the VAT is 5% and so on. Goods that have not been classified into any category have a
VAT of 15%.
d) Custom duty & Octroi:
When you purchase anything that needs to be imported from another country, a charge is
applied on it and that is the customs duty. It applies to all the products that come in via land,
sea or air. Even if you bring in products bought in another country to India, a customs
duty can be levied on it. The purpose of the customs duty is to ensure that all the goods
entering the country are taxed and paid for. Just as customs duty ensures that goods for other
countries are taxed, octroi is meant to ensure that goods crossing state borders within India
are taxed appropriately. It is levied by the state government and functions in much the same
way as customs duty does.
e) Excise Duty:
This is a tax that is levied on all the goods manufactured or produced in India. It is different
from customs duty because it is applicable only on things produced in India and is also
known as the Central Value Added Tax or CENVAT. This tax is collected by the government
from the manufacturer of the goods. It can also be collected from those entities that receive
manufactured goods and employ people to transport the goods from the manufacturer to
themselves.
The Central Excise Rule set by the central government provide suggest that every person that
produces or manufactures any 'excisable goods', or who stores such goods in a warehouse,
will have to pay the duty applicable on such goods in. Under this rule no excisable goods, on
which any duty is payable, will be allowed to move without payment of duty from any place,
where they are produced or manufactured.
Other Taxes:
While direct and indirect taxes are the two main types of taxes, there are also these small cess
taxes that are also seen in the country. Although, they aren’t major revenue generators and
are not considered to be as such, these taxes help the government fund several initiatives that
concentrate on the improving the basic infrastructure and maintain general well being of the
country. The taxes in this category are primarily referred to as a cess, which are taxes levied
by the government and the funds generated through this are used for specific purposes as per
the Finance Minister’s discretions.
Examples of Other taxes:
Below are some of the examples of other taxes that are seen most commonly in India.
a) Professional Tax:
Professional Tax, or employment tax, is another form of tax levied only by state governments
in India. According to professional tax norms, individuals earning income or practicing a
profession such as a doctor, lawyer, chartered accountant, or company secretary etc. are
required to pay this tax. However, not all states levy professional tax and the rate differs
across all the states that levy the tax.
b) Property Tax - Municipal Tax:
Also known as Property Tax or Real Estate Tax, this is one of the taxes levied by local
municipal bodies of every city. These taxes are levied in order to provide and maintain the for
basic civic services. All owners of residential or commercial properties are subject to
Municipal Tax.
c) Entertainment Tax:
Entertainment Tax is yet another type of tax commonly seen in India. It is levied by the
government on feature films, television series, exhibitions, amusement, and recreational
parlours. This tax is collected taking into account a business entity’s gross collection
collected from earnings based on commercial shows, film festival earnings, and audience
participation.
d) Stamp Duty, Registration Fees, Transfer Tax:
Stamp duty, registration fees, and transfer taxes are collect as a supplement of property tax.
For instance, when an individual purchases a property, they also have to pay for the cost of
stamps (stamp duty), registration fees (fee charged by local registrar to legalize a property
transaction), and transfer tax (tax paid to transfer the ownership of a commodity.
e) Education Cess/Surcharge:
Education cess is a tax in India primarily introduced to help cover the cost of government-
sponsored educational programs. This tax is collected independently of other taxes and is
applicable to all Indian citizens, corporations, and other people living in the country. The
effective rate of education cess currently stands at 2% of an individual’s income.
f) Gift Tax:
When an individual receives a gift from another person. It is considered to be a part of their
income generated through “other sources” and the relevant tax is levied. This tax is
applicable if the gift amount is more than Rs. 50,000 in a year.
g) Wealth Tax:
Wealth Tax was another tax levied by the government, which was charged based on the net
wealth of the assessee. Wealth tax is chargeable with respect to the net wealth of a property.
Net wealth is equal to all the assets an individual owns minus the cost of acquiring them (any
loan taken to acquire them). Wealth tax is no longer operational as it was abolished during
the Union Budget of 2015.
The wealth tax, governed by the Wealth Tax Act, allows the government to impose a tax on
the net wealth of a person, an HUF or a company. This tax is set to be abolished in 2016 but
until then the tax levied on the net wealth is about 1% of the wealth that exceeds Rs. 30 lakhs.
There are exceptions to this tax which are organisations that don’t have to pay wealth tax.
These organisations could be trusts, partnership firms, social clubs, political parties, etc.
h) Toll Tax & Road Tax:
Toll tax is a tax you often pay to use any form of infrastructure developed by the government,
example roads and bridges. The tax amount levied is rather negligible which is used for
maintenance and basic upkeep of a particular project.
i) Swachh Bharat Cess:
This is a cess imposed by the government of India and was started from 15 November 2015.
This tax is applicable on all taxable services and the cess currently stands at 0.5%. Swachh
Bharat cess is levied over and above the 14% service tax that is prevalent in the present times.
One thing worth noting here is that this cess is not applicable on services that are fully
exempt of service tax or those services covered under the negative list of services. It is
collected by the Consolidate Fund of India and will be used to funding and promoting any
government campaigns concerning the Swachh Bharat initiatives. This tax, however, is
independent of service tax and is charged as a separate line item in invoices.
j) Krishi Kalyan Cess:
This is yet another cess brought about by the government of India since the June of 2016. It is
basically introduced in order to extend welfare to all the farmers and to the improvement of
agricultural facilities in the country. Like Swachh Bharat cess, this tax is also applicable on
all taxable services with an effective rate of 0.5% and is charged over and above the service
tax and Swachh Bharat cess.
k) Infrastructure Cess :
Infrastructure cess is another tax brought into effect from the 1st of June 2016. Under this tax,
a cess of 1% is applicable on petrol/LPG/CNG-driven motor vehicles which are 4 meters or
less in length and 1200cc or less in engine capacity. In case the diesel motor vehicles which
don’t exceed the 4 metre length and have engines with capacities less than 1500cc, a tax of
2.5% is to be paid. For big sedans and SUVs, the cess stands at 4% of the overall cost of the
vehicle.
l) Entry Tax:
Entry tax is a tax levied in select states across the country like Uttarakhand, Madhya Pradesh,
Gujarat, Assam, and Delhi. Under this, all items entering the state ordered via e-commerce
establishments are taxed. The rate for this tax varies between 5.5% to 10%.
These are all the types and kinds of taxes that are present in India’s current economic
scenario. The funds collected from these methods don’t just fuel the country’s revenues but
also provides the much-needed impetus to help the lower classes prosper.

6.2 Startup India: Eligibility, Tax Exemptions and Incentives

Prime Minister Narendra Modi proclaimed the Startup India campaign in 2016 to boost
entrepreneurship in India. The action plan aimed at promoting bank financing for startups,
simplifying the incorporation of startup process and grant of various tax exemptions and
other benefits to startups.
But all the benefits and exemptions are available to the startups only if they come under the
criteria of an ‘Eligible Startup’.
So first let’s understand the conditions to be met to qualify as an “Eligible Startup”

 Eligibility for Startup India

 Tax exemptions allowed to Eligible Startups under Startup India Program

6.3 Eligibility for Startup India

As per the Startup India Action plan, the followings conditions must be fulfilled in order to
be eligible as Startup :
 1. Being incorporated or registered in India for less than seven years and for
biotechnology startups up to 10 years from its date of incorporation.
2. Annual turnover not exceeding Rs 25 crores in any of the preceding financial years.
3. Aims to work towards innovation, development, deployment or commercialization of
new products, processes or services driven by technology or intellectual property.
4. It is not formed by splitting up or reconstruction of a business already in existence.
5. It must obtain certification from the Inter-Ministerial Board setup for such a purpose.
6. It can be incorporated as a private limited company, registered partnership firm or a
limited liability partnership.

6.4 Tax exemptions allowed to Eligible Startups under Startup India Program
Following tax exemptions have been allowed to eligible startups :
1. 3 year tax holiday in a block of seven years
The Startup incorporated between April 1, 2016, till 31st March 2021 were eligible for this
scheme. Budget 2021 has extended the eligibility to 31st March 2022. Such startups will be
eligible for getting 100% tax rebate on profit for a period of three years in a block of seven
years provided that annual turnover does not exceed Rs 25 crores in any financial year.This
will help the startups to meet their working capital requirements during their initial years of
operation.
2. Exemption from tax on Long-term capital gains:
A new section 54 EE has been inserted in the Income Tax Act for the eligible startups to
exempt their tax on a long-term capital gain if such a long-term capital gain or a part thereof
is invested in a fund notified by Central Government within a period of six months from the
date of transfer of the asset. The maximum amount that can be invested in the long-term
specified asset is Rs 50 lakh. Such amount shall be remain invested in the specified fund for a
period of 3 years.If withdrawn before 3 years, then exemption will be revoked in the year in
which money is withdrawn.
3. Tax exemption on investments above the fair market value
The government has exempted the tax being levied on investments above the fair market
value in eligible startups. Such investments include investments made by resident angel
investors, family or funds which are not registered as venture capital funds. Also, the
investments made by incubators above fair market value is exempt.
4. Tax exemption to Individual/HUF on investment of long-term capital gain in equity
shares of Eligible Startups u/s 54GB.
The existing provisions u/s 54GB allows the exemption from tax on long-term capital gains
on the sale of a residential property if such gains are invested in the small or medium
enterprises as defined under the Micro, Small and Medium Enterprises Act, 2006. But now
this section has been amended to include exemption on capital gains invested in eligible start-
ups also.
Thus, if an individual or HUF sells a residential property and invests the capital gains to
subscribe the 50% or more equity shares of the eligible startups, then tax on long term capital
will be exempt provided that such shares are not sold or transferred within 5 years from the
date of its acquisition.The startups shall also use the amount invested to purchase assets and
should not transfer asset purchased within 5 years from the date of its purchase.
This exemption will boost the investment in eligible startups and will promote their growth
and expansion.
5. Set off of carry forward losses and capital gains allowed in case of a change in
Shareholding pattern.
The carry forward of losses in respect of eligible start-ups is allowed if all the shareholders
of such company who held shares carrying voting power on the last day of the year in which
the loss was incurred continue to hold shares on the last day of previous year in which such
loss is to be carry forward.The restriction of holding of 51 per cent of voting rights to be
remaining unchanged u/s 79 has been relaxed in case of eligible startups.