The Startup India took a great start with enormous fanfare on Saturday. Over 1 Lakh tweets were posted in response to this unique initiative and the campaign elicited great response from the internet based entrepreneurs.
But here are some points you ought to know that Indian media did not report.
Indeed, the Start Up India is a good scheme as it aims to reduce the paperwork as compared to previous similar schemes.
The most attractive point of this scheme is 3 years tax exemption for the companies, who satisfy the conditions.
Usually companies are required to pay 30% flat tax on their incomes and it’s one of the major reasons why they get dissolved in initial years.
But as it seems from the announcement, you could register your start-up with just one click from the mobile application. In the real world, this is practically not possible.
Because, for that, you first need to satisfy the definitions and eligibility criterion.
According to definition provided by the government, ‘start-up means 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, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.’
So it can be interpreted as following;
- First you need to be an entity which is incorporated or registered in India in the last five years
- Secondly, your turnover could not exceed Rs 25 crore. (Do notice that government is talking about turnover and not income. If you have 26 crore rupees sales and 27 crore expenses, sorry to say you’re not qualified.
- Works have been defined by government – I take it as a positive point of the draft as it would help to identify the true entities, who are likely to help the government in escalating the efforts towards a better India.
That’s all? NO, It’s just a start. By now you may have started raising your hopes that you are a potential candidate to benefit from this scheme. Well, wait!
This is what the govternment’s paper reads;
What the texts above mean that if you’re not an angel funded or a government of India funded company, the easiest way to get a certification is to pitch an incubator established in a post-graduate college in India or incubator recognized by government of India.
An incubator is generally an organisation outlined to quicken the growth and success of entrepreneurial companies through an array of business support resources and services that could include physical space, capital, coaching, common services, and networking connections.
Currently, Startup Village, Technopark TBI, Villgro, TBI, BITS Pilani are among the popular names of the incubator recognised by the Indian government.
It clearly shows that the budding entrepreneurs now have to live at the mercy of these incubators to be considered potential candidates to qualify for government of India’s scheme. It leaves them vulnerable for manipulation and opens up new scopes for corruption. The government has not specified what measures it has taken to ensure that start-ups don’t die premature deaths because of potential threats of manipulation by these incubators.
As an alternative to acquiring recommendations from these incubators, the government has also proposed that it will consider start-ups having obtained patent right for their products as eligible for the benefits.
But, anybody, who knows the bureaucracy attached to the process of obtaining the patent in India, will tell you it’s going to be a huge challenge.
The good thing is that Narendra Modi has promised legal support and fast-tracking of patent examination at lower costs. It would be interesting to see what would be the real output for the needy start-ups. If government fails to provide these things without red tapism then no chances of making out any success.
Government of India needs to be very active towards this scheme as it’s the backbone for any start-ups and counseling sessions are needed to be increased in order to make it easier for the beneficiaries.
But at the same time, government has to be aware that faster exit for start-ups could easily result in many tax-related scams.
The author of this blog is a budding chartered accountant and owner of a digital start-up