Government has eased the norms for start-ups

•  The government has eased the norms under which start-ups can seek benefits according to the Startup India Action Plan.
• Start-ups can now be eligible for benefits by simply receiving a certificate from the Department of Industrial Policy and Promotion (DIPP), compared with the earlier process of being vetted by an inter-ministerial board.
• Funds received by a startup amounting to Rs 25 lakh or more by way of a convertible note, in a single tranche from a person, will not be treated as a `deposit'. The convertible note is to be either converted into equity or repaid within a period of five years. However, it should be noted that the relaxation is available only to startups that meet the government prescribed norms (as defined by the department of industrial policy and promotion, or DIPP).
• Startups are defined by a DIPP notification dated February 17, 2016, to mean "an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding Rs 25 crore in any preceding financial year". Second, such an entity is required to be engaged in "development, deployment or commercialization of new products, processes or services driven by technology or intellectual property".
• If a tax holiday is to be availed, the entity is required to be set up between April 1, 2016 and March 31, 2019 and an approval of an inter-ministerial board set up by DIPP is required. The tax holiday is available for a period of three years in a block of initial five years
• Till date, DIPP has received 782 applications from start-ups, seeking tax benefits. Of these, only 180 had the required documents — one of them being the incubator’s certificate on innovative business.
• While 88 start-ups have been listed by DIPP as possible contenders for most benefits, so far only one start-up has managed to get the approval of the inter-ministerial board for tax benefits.

Analysis:

• New norms would allow more start-ups to receive benefits, while the government would be able to build a scalable model to spur growth in the new economy. Benefits include faster and cheaper patent examination and being eligible for the Rs 10,000-crore ‘fund of funds’. However, it was not clear whether the relaxed norms will be valid for availing tax benefits, which a lot of start-ups covet.
• India currently has the third-largest number of start-ups in the world. While there were more than four thousand technology-based start-ups.
• India, a country of 1.25 billion people, is home to the world’s second largest population. India’s population base is expected to serve as a huge asset for the country in the next few decades. India is poised to become the world’s youngest country by 2020, with an average age of 29 years, and account for around 28% of the world’s workforce. The country’s population pyramid is expected to “bulge” across the 15–64 age bracket over the next decade, increasing the working age population from approximately 761 million to 869 million during 2011–2020.Until 2020, India will be experiencing a period of “demographic bonus,” where the growth rate of the working age population would exceed that of the total population.
• Environment becomes more and more conducive to start your own venture; it is this breed of the new middle class Indian who is creating global companies out of India.
• The nascent stage of infrastructure in India is presenting a huge opportunity for companies to find white space and bridge the gap between what is and what could be.

By: Vishal