There is a wave of growth in the country with the total tally reaching a total of 64000 registered start-ups under the Start-up India Scheme along with at least 85 of them being ‘Unicorn’ Start-ups (i.e. a start-up having a total valuation of either $1 billion or above) with a combined valuation of $ 287.89 billion on 28th January 2022.Licious, Cardekho Mamaearth, Meesho, Gofers, Vedantu, Bharatpe, etc among various sectors such as health tech, social commerce, crypto, and e-pharmacy unicorn this year.
Apart from pursuing innovations and the latest technology and offering huge employment opportunities, start-ups have played a crucial role in strengthening the economy through attracting foreign investments, encouraging and promoting local Indian Products, lesser reliance on imports and more exports, and many more. Considering the significance of the start-ups for the development of the Indian economy, Mrs. Nirmala Sitharaman announced the annual budget for the financial year 2022-23, stating various benefits for the start-ups in India, which includes-
Allocation of Budget for Start-up India Seed Fund Scheme–
The Start-up India Seed Fund Scheme(SISFS)was launched in April 2021, by the Ministry of Commerce, under the Govt. of India with an objective to offer funds in the form of financial support to start-ups in the early stage, who are unable to get the same from private equity or venture capitalists or even banks or financial institutions. Easy availability of funds is crucial in the early stages of the development for various purposes such as proof of concept, prototype development, product trials, market entry, commercialization, etc. Until they come to a point to become eligible for seeking investments from angel investors, venture capitalists, or seek loans from banks or financial institutions.Considering the wave of start-ups in India, the Government has allocated a total of Rs. 283.5 Crores for the SISFS funds which stand Rs. 100 crores.
Tax-related benefits extended for four years instead of three years earlier-
For ensuring that more funds are available with businesses for business development or other purposes in the initial ten years from incorporation, the start-ups are eligible for availing tax exemptions for a total period of three years by making an application under the Start-up India Scheme that was valid it March 2022. However, realizing the fact that most of the business activities have been severely impacted by the Covid-19 pandemic, the Govt. of India has announced an extension of tax benefits for a further period of 1 year additionally i.e. March 2023.
Concessional Tax rates for newly incorporated manufacturing start-ups-
For encouraging more funds in the form of tax savings, the Union Government has also proposed a concessional tax rate at the rate of 15% for the newly incorporated manufacturing entities, which will give a boost to manufacturing activities by the newly incorporated domestic business entities which are either 25% or 30% in case of other entities.
Separate Budget Allocation for Fund of Funds (FFS)-
Fund of Funds is a corpus fund created by the Department of Promotion of Industry and Internal Trade (DPIIT) under which the eligible start-ups approved by the implementation agencies will receive financial assistance for which the primary operator will be the Small Industries Development Bank of India (SIDBI). For the purpose of encouraging innovation through funding across various sectors such as agro-tech, deep-tech, climate protection, etc. a total of Rs. 1000 crores have been allocated by the Govt. of India.
Defence collaborations with start-ups-
The Govt.of India in its annual budget for 2022-23 also laid emphasis on the fact that India needs to be self-sufficient in terms of its defense equipment and machinery under its “Made in India” program. Thus, a total of 25% of the Defence budget will be diverted towards Defence Research & Development projects in cooperation with the start-ups to encourage them for designing and launching advanced military instrumentals through the special purpose vehicle (SPV) model. This step will not only strengthen the military industry in India but will also encourage the Public-Private Partnership scheme (PPP) in the defense sector.
What is Start-up under the Start-up India Scheme?
For the purpose of building a robust start-up ecosystem through encouragement to innovation and inventions in the existing products/services or technologies by providing an opportunity to the budding entities and entrepreneurs, by the Department for Industrial Policy and Promotion (DPIIT), the Govt. of India launched the Start-up India Scheme on 16th January 2016. Accordingly, the primary objectives of the Scheme are-
- Encouraging entrepreneurial innovation and inventiveness;
- Creation of a robust start-up eco-system; and
- Creation of a scalable and innovative system for the purpose of generation of wealth and employment in India.
Essentially, when a business is generally is in early developmental stages with an innovative product/service /technology over the existing products/services, fulfilling the eligibility criteria can make an application under the Start-up India Registration portal made available by the Department for Promotion of Industry and Internal Trade (DPIIT).
Eligibility Criteria & Benefits of Registration
To be eligible to get registration under the Start-up India Scheme by the Department for Promotion of Industry and Internal Trade, under the Ministry of Commerce, the following must be met by the company-
- Age of the Company- A total of ten years should not have been elapsed from the date of incorporation;
- Type of Legal Entity-Only a Private Limited Company, a Limited Liability Company, or a Partnership Firm can register itself as a Start-up.
- Original Entity-Such legal entity should be original and not be a result of any merger or demerger of earlier existent legal entities.
- Annual Turnover- The annual turnover of the legal entity must be lesser than 100 crores;
- Innovative & Scalable-The legal entity must be working towards either an improvement or innovation over any existing products/services/processes; and must have the potential to either generate wealth or employment or both.
Benefits of Start-up India Registration
- Tax exemption under section 80 IAC and Section 56 of the Income-Tax Act 1961(After getting approved for this, the Start-up can avail tax holiday for four consecutive financial years out of the ten years since its date of incorporation);
- Self- Certification compliance under as many as six Labour Laws and three Environmental Laws only random checks will be conducted;
- Fee concession and expedited process of IPR Registrations Start-ups shall be provided an 80% rebate in filing of patents and exhibited process for obtaining IPR registrations.
- A special panel of facilitators shall be assisting start-ups in the filing of IP applications.
- Easier and faster winding-up procedure and ease in public procurement norms.
In recent years, the Govt. of India has taken multiple steps to encourage growth and creation of a robust start-up ecosystem, and consequently, in the last two years, a large number of Startups have already become unicorn start-ups and others are already in the process of reaching there. In such a situation, steps like an extension of tax benefits and financial support at the times of the Covid situation have been hugely welcomed by the business industry including the budding entrepreneurs.