"START UP India"

START UP
Q. What Is a Start-Up?
ANS . An entity shall be considered as a ‘Start-up’ (as per start up India policy)-
Up to five years from the date of its incorporation/registration,
If its turnover for any of the financial years has not exceeded Rupees 25 crores, and
It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;
New Entity Concept is must i.e. such entity shall not be formed by splitting up or reconstruction of a business already in existence.
To obtain Tax Benefits a Start-up shall be required to obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification consisting of: 
Joint Secretary, Department of Industrial Policy and Promotion,
Representative of Department of Science and Technology, and
Representative of Department of Biotechnology.

The term 5 years shall be taken from its incorporation date not from the date of recognition as a start-up.

Entity means a private limited company or a registered partnership firm or a limited liability partnership.

Turnover limit shall be calculated as defined under Companies Act 2013.

The concept of a new product or service or process is must for recognition as Start-up, significant changes in an existing product can be considered as new product also.

Starts-ups will be allowed to self-certify compliances with various Labour laws and Environment laws.

As per Karnataka Start-Up Policy,

Definition of a Start-up:- one that creates a technology based service or product or uses technology for enhancing functionality or reach of an existing product or service, it must not be registered for more than 4 years (7years in case of Business Technology Company, it must be registered in Karnataka, it employs at least 50 (fifty) per cent of its total qualified workforce in Karnataka and its revenue does not exceed Rs 50 Crores and it must be a new entity).

As per the Rajasthan Start-up policy, Definition of a Start-up- Start-up is an entity that develops a business model on some innovation and makes it scalable for achieving commercial success.

START-UPS DEFINITIONS AND RECOGNITION AS PER DIFFERENT START UP POLICIES: Life span of all the 3 policies discussed below is 5 years.

Benefits to a Start-Up

Under Start-Up India Scheme: as soon as a start-up is recognised as a start-up in India it will be eligible for these benefits -
Start-ups will be exempted from paying income tax on their income for the first 3 years.

80% rebate on filing a patent application.
Fast track mechanism for patent applications.

Exemption of tax on capital gain. When person invests its own wealth, then they will get exemption from capital gains tax.
Mobile app launched on April 01, 2016 which will enable start-ups to get registered within a day. The app will have a small application form for registration.
Web portal launched on April 01, 2016 for clearances, approvals, and registrations.
Compliance regime based on self-certification.

No inspection for 3 years of start-up businesses in respect of labour, environment law compliance post self-certification.

Easier norms for start-ups to exit within 90 days. Bill will be introduced in the parliament.

Relaxed norms of public procurement for start-ups. There would be no requirement of turnover or experience.

Government will setup a fund with an initial corpus of Rs. 2, 500 crores and total corpus of Rs. 10, 000 crores over a period of 4 years.

A hub for start-up India will be started with single point of contact.

Under Karnataka Start-Up Policy
Apart from the above mentioned benefits, under Karnataka Start-up policy some other benefits are also there for Karnataka based Start-ups. These benefits are as under:-
Reimbursement of Service Tax paid by start-up incubated by Government of Karnataka supported incubators and CIFs whose annual turnover does not exceed Rs. 50 lacs for the period of first three years.
Reimbursement of VAT/ CST paid in the state of Karnataka, up-to a maximum of Rs. 50 Lacs turnover by incubated start-up companies within a period of first three years.
Reimbursement of VAT/CST on goods supplied to the Incubator or incubatee.
Karnataka Government would match the funding raised by the Incubator from Government of India on a 1:1 basis.
Karnataka Government shall provide reimbursements of 30% of the actual costs including travel incurred in international marketing through trade show participation up-to a limit of Rs 5 lacs.
Patent filing fees will be reimbursed up-to Rs 2 lacs for Indian Patent and Rs 10 Lacs for International Patent.
All government funded start-ups will be mandated to keep 10% seats for Women entrepreneurs.

Under Rajasthan Start-Up Policy – Apart from the benefits provided by Start-Up India by Central Government the State Government will provide some additional benefits to entrepreneurs in state. These are as follows -
Sustenance allowance of INR 10,000/- per month for one year to the Start-Upss at Idea/Prototype Stage, post approval by the Committee and Nodal Institution.
Incubator will provide mentoring services, access to their labs, facilities etc on a free-of-cost (FOC) basis.
Selected Start-Ups to get free access to state infrastructure like University/Libraries/ Govt. Laboratories etc.
Assistance for Start-Ups at the Pilot Stage, under which marketing assistance of maximum INR10 lacs will be provided to the Start-Ups to launch its product.
Scope for financial assistance wherein the Start-Ups can source Venture Capital from Angel Investors/Venture Capital Funds.
Special incentives and a state-wide business plan competition to invite new innovative business idea from across the state.
Incentives, including grants, have also been extended to angel investors
The policy also provides for Routine Start-Ups Festivals to be held in the State.
Start-Ups Council to be setup with representatives from the industry to play an advisory role and act as a think-tank for strengthening the Start-Ups eco-system in the state.
Plans are being drawn to setup a Rajasthan Start-Ups Village and e-Platform. Until the setup is done, a cloud server for start-ups, MOOCs and co-ordinating with various related state and central govt. agencies has been proposed to further strengthen the start-up eco-system.
Further - in exercise of Para 16 of Public Procurement Policy for Micro and Small Enterprises Order 2012, it is clarified that all Central Ministries/Departments/ Central Public Sector Undertakings may relax condition of prior turnover and prior experience with respect to Micro and Small Enterprises in all public procurements subject to meeting of quality and technical specifications.
This means that Ministry of Micro, Small & Medium Enterprises has relaxed the Norms for the Start-Ups as The Start-ups are normally Micro and Small Enterprises which may not have a track record.
Income Tax Provisions and Benefits for Start-Ups
The biggest Income Tax incentive for the Start-ups is that Start-ups will not be required to pay income tax on their profits for the first three years, and the start-ups setup before April 1, 2019.

This benefit of deduction of Income Tax on business income will be available as a means of 100% tax deduction for start-ups U/s 80IAC. The deduction can be claimed for any three consecutive years out of five years beginning from the year in which eligible start-up is incorporated.
Conditions for availing such deduction, as proposed in the budget, are as follows-
It is not formed by splitting up, or the reconstruction, of a business already in existence. (This condition would not apply in case of re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section)
It is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, this condition would not be applicable if value of such used plant and machinery does not exceed 20% of total value of plant and Machinery used in the business.
Further, this condition would not be applicable to a plant and machinery used outside India by any other person if
i. It is imported by the assessee in India
ii. It was not used at any time in India before the date of installation by the assessee
iii. Prior to the date of installation, no depreciation was allowed or allowable on it to any person under Income-tax Act, 1961.

Start-ups will also be exempt from capital gains tax for the period of three consecutive years out of first five years from its registration.
For this purpose Sec 54EE for Capital Gains exemptions is inserted w.e.f. 01/04/2017 which provides for any Long Term capital Gain may be exempted if the amount of capital gain is invested in long-term specified asset.
Explanation- Long Term specified asset means a unit or units, issued before 01/04/2019, of such fund as may be notified by central government in this behalf.
Amount to be invested within a period of six months from the date of transfer and shall remain invested for a period of 3 years minimum.
Maximum investment eligible for exemption by investing in long term specified asset during a financial year shall not exceed Rs 50 lacs.
Capital Gain Exemption in respect of LTCG gains arising out of transfer of residential property invested in the shares of start-up Company (Amendment in Section 54GB)

Section 54GB now reads as - It is proposed that long term capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains are invested in subscription of shares of a company which qualifies to be an eligible start-up subject to the condition that the individual or HUF holds more than fifty per cent shares of the company
Such company utilises the amount invested in shares to purchase new asset before due date of filing of return by the investor.
“New Asset” would now also include computers or computer software in case of technology driven start.
To promote innovation, a special patent regime has been proposed with a straight 10% rate of tax on income from worldwide exploitation of patents developed and registered in India.
Capital gains tax to be exempted for venture capital investments.
Service Tax Provisions and Benefits for Start-Ups

Payment of service tax on quarterly basis and facility of payment of service tax on receipt basis is being extended to a One Person Company (‘OPC’) with effect from 1 April, 2016, which would also benefit start-ups registered as OPCs.
Apart from this, Karnataka Start-Up policy provides for Reimbursement of Service Tax paid by start-ups incubated in Government of Karnataka supported incubators and CIFs whose annual turnover does not exceed Rs. 50 Lacs for the first three years or till the incubator becomes DST certified whereby the services given by the incubator and the incubatees become exempt from service Tax.

This benefit can be claimed by applying as a Start-up at Karnataka start-up policy official website http://bangaloreitbt.in/
State Level VAT/CST Provisions and Benefits for Start-Ups

Karnataka Start-Up policy provides for Annual Reimbursement of VAT/CST paid in Karnataka, up-to a maximum of Rs. 50 Lacs turnover by incubated start-up companies within a period of first three years of being incubated.

Funding for Start-ups in India
Personal Savings Or Bootstrapping: An entrepreneur will often invest personal cash balances into a start-up.  This is a cheap form of finance investing personal savings maximizes the control the entrepreneur keeps over the business.
Banks And Other Commercial lenders: Loans from banks and NBFCs help finance the purchase of inventory and equipment, besides securing operating capital and funds for expansion. More importantly, unlike a VC or angel, which have an equity stake, banks do not seek ownership in your venture
Incubators. A start-up incubator is a company, university or other organization that ponies up resources–laboratories, office space, consulting, cash, marketing–in exchange for equity in young companies when they are most vulnerable.
Angel investors: Angel investors are individuals and businesses that are interested in helping small businesses survive and grow. So their objective may be more than just focusing on economic returns.  Angel investors are usually found among an entrepreneur's family and friends. The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.  The capital they provide can be a one-time injection of seed money or ongoing support to carry the company through difficult times.
Venture capital: After the initial seed-funding stage, comes expansion and growth of the venture, which requires big money. This is where VCs come in, offering anywhere from `1-300 crores in exchange for a high equity stake. It is one of the most popular sources of funding for mid to late-stage start-ups and has been in the news after big-ticket deals for Flipkart, Snapdeal and Ola.
Grant and Subsidies: Federal and state governments often provide financial assistance in the form of grants and/or tax credits for start-up or expanding businesses.
Equity Financing: Equity Financing means exchanging a portion of the ownership of the business for a financial investment in the business. The ownership stake resulting from an equity investment allows the investor to share in the company’s profit. Equity involves a permanent investment in a company and is not repaid by the company at a later date.
Leasing Companies: Manufacturing start-ups can secure long-term funds from leasing companies. For this purpose a lease agreement is made whereby plant, machinery and fixed assets may be purchased by the leasing company and allowed to be used by the manufacturing concern for a specified period on payment of an annual rental. At the end of the period the manufacturing company may have the option of purchasing the asset at a reduced price.