Startups mean bringing a new innovative idea in the market after studying the potential demand in the market for that product. A lot of brilliant ideas of start-ups that helps in development and empowerment of nation and economy remains underlying because of lack of resources such as the initial investment, high rate of taxes etc. To overcome this major hindrance in the development of nation in respect of innovation and wealth, Ministry of Micro, Small and Medium Enterprises under the leadership and guidance of Narayan rane, the Minster of said ministry introduced various benefits for the startup companies that includes tax exemption, subsidy in different registration processes, easy bank loan at less rate of interest and many more.

What are the conditions for start-ups to avail benefits?

Startup benefits are provided under the Startup India Action plan that defines some conditions to procure the benefits under the said Act. The said conditions are mentioned below:

  1. The company which wants to avail the benefits must not be older than 10 years i.e. the company has not completed the 10 year of registration.
  2. The nature of company must be either a private limited company or a registered partnership firm or a partnership firm with limited liability.
  3. The annual turnover of the company should not exceed Rs. 100 crore in any financial year since incorporation.
  4. The main objective of the company focus on the innovation, development and growth with high potential of wealth and employment generation.
  5. The company is not the result of demerger or expansion of any existing business.

What are the different schemes for Startups in India?

Tax Exemptions: The company which is eligible as start-up gets following tax exemption from Government of India:

  1. In order to meet the working capital requirement in initial years of incorporation the Government of India provides for 100% tax rebate on profits for the company which is registered between 2016-2022 financial year for a period of three years in a block of seven years with a condition that the annual turnover of the company does not exceed Rs. 25 crores in any financial year.
  2. The start-up companies are exempted from the tax liability arises from long term capital gain if the gain or any part of such gain is invested in a fund notified by Central Government within a period of six months from the date of transfer of the asset as provided under the newly added Section 54 EE of the Income Tax Act, 1961 (herein after referred as Income Tax Act). Additionally, it is also provided in the above said provision that the maximum amount that can be invested in long term assets cannot exceed 50 lakh and same cannot be withdrawn for the period of three years and if did so the exemption can be revoked in the same financial year in which the investment is withdrawn.

Simultaneously, various other exemptions are provided under the Income Tax Act for encouraging and promoting start-ups in India.

Pradhan Mantri Mudra Yojna: The Government launched the Pradhan Mantri Mudra yojana for providing loans to start-ups and micro small scale industries. Under this scheme MUDRA (Micro Units Development and Refinance Agency) bank provides low rate loans to the financial and non banking financial institutes who in results provide loans to the start-ups at low interest rate. A loan amount of upto Rs. 10 lakh can be availed from the above stated scheme.

Credit Gurantee Trust Fund for Micro and Small Scale Enterprises (CGTSME): The CGTSME scheme is the major start-up scheme launched by Government under the ministry of Micro Small and Medium Scale Industry.  The Government provides a collateral free loan of upto 1 crore is provided to eligible start-ups under the said scheme.

Credit Linked Capital Subsidy for Technology Upgradation (CLCSS): Technology is the utmost important factor for the development of any company and keeping this in view government introduced the CLCSS scheme for eligible start-ups. As the cost of machinery is increasing day by day and it is difficult for the startup companies to install upgraded technology in the company therefore, the Govt of India provides financial help to  upgrade their technology. 15% subsidy upto 1 crore is provided under the scheme for technology upgradation.

Financial Support in ZED certification scheme: The scheme is introduced to increase the efficiency of manufacture. The main aim of the scheme is to enable the manufacturer to produce high quality products with the minimum amount of defects in it with the best technology. Under this scheme the Govt provides financial support, tools and technology to ensure that the company will manufacture products of high class with best technology and quality.

Our Govt is continuously working on promoting start-ups and providing best help to the start-ups and small scale companies by introducing best schemes for them. A large population of India is still unaware of the benefits and somehow lack knowledge while applying for the various schemes provided by the Govt and as a result fails to avail the benefits of the said scheme. Therefore, it is essential to engage legal experts to fulfil all the requirements for falling in the ambit of eligible start-ups.

Surbhi Singla

Associate at Aggarwals & Asssociates, Mohali