We at Finalyzer Consultants believe that Start-ups are next best thing for India. An entrepreneur can imagine, innovate and inspire billions of people not only by his idea and vision but also by addressing a common problem . Successfully initiating such a large event with global participants is itself an achievement for the government of India which has failed miserably in the past on reforms and policies for the start-ups. We are strong believer in start-ups as our organisation has been serving many start-ups with their compliance ,accountancy and funding needs in one form or the other. We salute such initiatives taken by Narendra Modi government and firmly believe in the leadership for implementing them.
In this educational write up, we will try to simplify the document i.e. Action plan for start-ups. Since it well laid down, presentable, properly documented and section wise arranged, the chance of ambiguity are not much. However let us simplify the points so as to understand it in a much better manner
First question which comes to mind is
Who/What is Start-up? More importantly as per Scheme i.e. #StartupIndia. Let us look at the definition to understand it in layman’s term.Definition of Start-up can be found in Annexure 1 of Start-up India: Action Plan.
Our analysis and pointer on definition of Start-up is explained as under:
Type of Entity: Entity means Private Ltd Company, Limited Liability Partnership or Registered Partnership Firm incorporated or registered in India. Thus unregistered partnership ,proprietary concern, One Person Company or Public unlisted Company or Public company can not form part of scheme. Now question arises whether foreign entity who is registered in India can qualify as Start-up Entity and be part of scheme. This question is not directly answered but definition is clear wherein the word used is “or” i.e. “incorporated or registered in India”. Our understanding says that f the foreign company is registered in India it can be a part of the scheme. However we would wait for the fine print in the Annual Budget so as to be doubly sure and there are no surprises later.
Entity age must be for 5 years or less from date of incorporation: As per this plan entity cease to be a start-up on completion of five years from date of incorporation thereby restricting existing entities older than two year to enjoy the full three years benefit of tax exemptions. On the flip side, who is two year old and profitable can take the benefits under the scheme.
Turnover of Entity should be INR 25 Crores or less: As per this plan entity cease to be start-up entity if its turnover in previous financial year exceeds INR 25 crores. In our view, year in which entity crosses INR 25 crores will still be entitle under the scheme benefits.
Identification of Business: We are representing the same definition laid down as under: “Entity working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. Entity business is covered under above definition if it aims to develop and commercialize a new product or service or process or a significantly improved existing product or service or process, that will create or add value for customers or workflow.”
One of good things is that it not only focus on product or services but also includes process. It would be interesting to understand how would this process be determined and that too in form of a new company. Most import point here to note is that it should be commercialised i.e. saleable to consumer.
Mandatory Eligibility : As laid down in action plan below are Start-up should have any of following
- Recommendation from an Incubator established in a post-graduate college in India or
- Supported by Incubator which is funded from GOI as part of any specified scheme to promote innovation or
- Recommendation from an Incubator recognised by GOI or
- be funded by an Incubation Fund/Angel Fund/ Private Equity Fund/Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business or
- be funded by GOI as part of any specified scheme to promote innovation or
- have a patent granted by the Indian Patent and Trademark Office in areas affiliated with the nature of business being promoted.
Tax Benefit Provision : One of mandatory requirement for Start-up to be eligible for tax benefits is obtaining certification from the Inter-Ministerial Board (“IMB”)
Looking into overall definition and criteria, there are many procedure which would be required to get eligible into scheme. A small summary based on my opinion is set-out as under
- Entity should Pvt Ltd, LLP or Registered Partnership
- Entity should be less than five years old
- Entity’s turnover should not exceeds INR 25 crores in previous year.
- Entity requires to fulfil the eligible criteria as laid down in point “E”
- Entity needs certification from IMB
All these processes would be routed through an ‘App’ making it convenient. As specified in Action Plan that ‘App’ would act as collaboration partner for obtaining partner and necessary eligibility as mentioned in point E.
Will the existing company who has an innovative process be considered as a start-up under this plan? Will the processes for this plan will replicate the Vibrant Gujrat type model? Will the young talent have to hunt for foreign professionals for resources to support that their passion, motivation and morale? Only time will tell
We at Finalyzer Consultants strongly believe that such encouraging initiatives would change the scenario and the way start-ups are looked at. We have been supporting start-ups for everything. This includes the entire process of validating the idea to getting funds and not only limited to preparing financial feasibility, ROC compliances to annual accounting to manpower.
We believe the only way to go is UP and with such support in terms of clear policies as well as benefits our country will only grow. Encouraging Entrepreneurs for solving worldwide problems through their imagination and innovative solutions is how it happens globally and that is how these young minds function. We want to add value through our expertise into this ecosystem so that ideas blossom and businesses grow.