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AN OVERVIEW OFGOVERNMENT INCENTIVESFOR STARTUPSPresented By: CA Bhavesh ThakkarDecember 2019
Background
Indian economy: a dichotomy3rd5thProjected to3overtake the US byLargest in the Worldby PurchasingPower Parity 1Largest in theWorld byNominal GDP22030Annual growth inFDI equity inflowfor FY 2020 428%Ease of Doing Business Rankings 2019 India’s position among 190 countries5 India Overall Rank: 63 (Jumped up by 14 places as against previous year ranking of 77) Prime Minister Narendra Modi aspires to become a US 5t economy by 2024 Currently there is US 158.50b worth of investments planned for the country 6Sources:Sources:1. World Bank Database – Ranking of countries by Gross Domestic Product in2018, World Bank Website4. June 2019 Quarterly Fact Sheet – Department of Industrial Policy andPromotion, Government of India2. World Bank Database – Nominal GDP Indicator, World Bank Website5. Rankings – Doing Business, World Bank Website3. Report by economists from Standard Chartered Plc6. Invest India WebsitePage 316 December 2019
BackgroundQuarterly GDP Growth (%)#87 865 643875.842 210 06.65Apr '18 - Jun Jul '18 - Sep Oct '18 - Dec Jan '19 - Mar Apr '19 - Jun'18'18'18'19'19 A combination of global and domestic factors has resulted in a fall in India’s GDP growth from 8% to5%. Global Factors – Global Slow down, US – China Trade War, Brexit etc. Domestic Factors – Weak domestic consumption, financial sector health etc.The Country requires some massive regulatory and tax reforms to be considered as a preferreddestination in terms of ease of doing business# Source: Economy Watch - Monitoring India’s macro-fiscal performance September 2019 (Prepared by Macro-fiscal Unit, Policy Advisory Group, EY India)Page 416 December 2019
Overview of performance of StateBestPerformer GUJARAT100 PercentileTopPerformersLeadersPage 5 KARNATAKA KERALA ODISHA RAJASTHAN ANDHRA PRADESH BIHAR CHATTISGARH MADHYA PRADESH TELANGANA16 December 2019With more than 85Percentile but less than100 PercentileWith more than orequal to 70 Percentilebut less than or equalto 85 Percentile
Overview of performance of StateEmergingStatesBeginnersPage 6 ASSAM DELHI GOA MAHARASHTRA TAMIL NADU UTTARAKHAND JAMMU & KASHMIR PUNJAB CHANDIGARH MANIPUR MIZORAM NAGALAND16 December 2019 PUDUCHERRY SIKKIM TRIPURAWith more than 50Percentile but lessthan 70 PercentileWith less than orequal to 25Percentile
Make in India
Fiscal incentivesFiscal IncentivesCentreForeign TradePolicyPage 816 December 2019StateSectoral Policy(Textile,Electronics, etc.)Sectoral Policy(Information andTechnology,Solar, etc.)Industrial Policy
Fiscal incentivesBased on natureFiscal IncentivesCapital LinkedExpenditureLinkedCash BackExemption/ CashBackPage 916 December 2019Sales LinkedExports - ScripsDomestic Sales –Sales Tax linked
Make in IndiaPage 1016 December 2019v/sMade in India
Global innovation index
Global innovation indexPertinent to India, the following information has been extracted from the GlobalInnovation Index:1. We stand at 52 rank out of 152countries in the year 2019 as opposedto 57th rank in the year 20183. Retains the top position within theCentral and South Asia Region(followed by Iran and Kazakhstan)2. Highly scored in the followingparameters:a) ICT services exportsb) Graduates in science andengineeringc) Quality of universitiesd) Gross Capital Formation(economy-wide investmentsmeasure)e) Creative goods exports4. Science & Technology clustersPage 1216 December 20195. Bengaluru, Mumbai and New Delhi6. Maintained the momentum foroutperforming on innovation relative toGDP for the 9th consecutive year7. Currently, there are 25,739 DPIITrecognised startups in the DPIIT
Startup Index of Nations & RegionsRanking of Countries on Share of Billion Dollar Startups (Unicorns)RankCountryShare of Unicorns1United States64.7%2China13.8%3India4.1%4United anada1.6%9South Korea1.5%10Russia1.0%Reference: dex-nations-regionsPage 1316 December 2019
Best practices followed by other CountriesWhat is the distinguishing factor as compared to India?CountryReasonUnites Statesof America Robust angel and venture fundingBest R&DUnitedKingdom Ease of incorporating a company; it can be done as fast as within anhour and will cost you 14 or about 20 [approx.]Various tax benefits Canada Unlimited access to world-class talent poolsSolid entrepreneurial cultureReasonable rental market & a global network of clients.Generous grants from the government & a startup friendly taxsystem.New Zealand Skilled labour force that is not too expensiveThere are no payroll, capital gains or social security taxes involvedIncorporating a business takes a day while registering a propertycould take as little as two daysIt also has a wealth of information readily available online throughStatistics New Zealand that can help you run thorough research intowhatever industry you would like to invest in. Page 1416 December 2019
What, Who and How of Startup in India
Startup in India Startup India is a flagship initiative of the Government of India, intended tobuild a strong ecosystem that is conducive for the growth of startupbusinesses, to drive sustainable economic growth and generate large scaleemployment opportunities. The Government through this initiative aims to empower startups to growthrough innovation and design. For availing various benefits under the Startup India scheme, an entity wouldbe required to be recognized by Department of Industrial Policy andPromotion (DIPP) as a startup by applying tartupgov/startup-recognitionpage.html.Page 1616 December 2019
Who can be a Startup?1. If it is incorporated as a private limited company or registered as apartnership firm or a limited liability partnership in India2. Up to ten years from the date of its incorporation/registration3. If its turnover for any of the financial years since incorporation/registration hasnot exceeded INR 100 Crores4. If it is working towards innovation, development or improvement of productsor processes or services, or if it is a scalable business model with a highpotential of employment generation or wealth creationNote: An entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’.Page 1716 December 2019
Startup registered on the startup India websitevs DIPP recognized startups A startup which has a profile on the startup India website is considered aregistered startup on the portal. These startups can apply for various acceleration, incubator/mentorshipprogrammes and other challenges on the website along with getting anaccess to resources like Learning and Development Program, GovernmentSchemes, State Polices for startups, and pro-bono services. For DIPP-recognition, the startups have to applyat rtupgov/startuprecognition-page.html to avail benefits mentioned in the above slidesPage 1816 December 2019
Cities ahead in the startup venture in India
Cities ahead in the startup venture in dKolkataPage 2016 December 2019ChennaiKochi
Startup India: Initiatives by Central Government
Benefits under Startup India InitiativeThe benefits provided to recognized startups under the Startup India initiativeare:1. Self-Certification: Self-certify and comply under 3 Environmental & 6 LabourLaws2. Tax Exemption: Income Tax exemption for a period of 3 consecutive yearsand exemption on capital and investments above Fair Market Value3. Easy Winding of Company: In 90 days under Insolvency & BankruptcyCode, 20164. Startup Patent Application & IPR Protection: Fast track patent applicationwith up to 80% rebate in filling patentsPage 2216 December 2019
Benefits under Startup India Initiative5. Easier Public Procurement Norms: Exemption from requirement of earnestmoney deposit, prior turnover and experience requirements in governmenttenders6. SIDBI Fund of Funds: Funds for investment into startups through AlternateInvestment Funds7. Apply for tenders: Startups can apply for government tenders. They areexempted from the “prior experience/turnover” criteria applicable for normalcompanies answering to government tenders.8. R&D facilities: Seven new Research Parks will be set up to provide facilitiesto startups in the R&D sectorPage 2316 December 2019
Benefits under Startup India Initiative9.No time-consuming compliances: Various compliances have beensimplified for startups to save time and money. Startups shall be allowed toself-certify compliance (through the Startup mobile app) with 9 labour and 3environment laws10. Tax saving for investors: People investing their capital gains in the venturefunds setup by government will get exemption from capital gains. This willhelp startups to attract more investors.11. Choose your investor: After this plan, the startups will have an option tochoose between the VCs, giving them the liberty to choose their investors.12. Meet other entrepreneurs: Government has proposed to hold 2 startupfests annually both nationally and internationally to enable the variousstakeholders of a startup to meet. This will provide huge networkingopportunities.Page 2416 December 2019
Benefits granted by State Governments:
Benefits under MaharashtraState Innovate Startup Policy,2018Page 2616 December 2019
Definition of a StartupIncorporated as either a private limited company, a partnership firm or a limitedliability partnership in Maharashtra, as per the prevalent norms for registrationOperational for not more than seven years from the date of itsincorporation or registration, which is extended to 10 years for units in thebiotechnology and social sectorsEligibilityCriteriaReporting an annual turnover of at most INR 25 Crores since itsincorporation or registrationThe unit should either strive towards innovation, development or improvementof products, processes or services; OR be a scalable business model withstrong potential for high employment generation or wealth creationNotes The aforementioned criteria have been defined under the Startup India: Action Plan by the Government of IndiaUnits in the social sector include, but are not limited to, Education, Skill Development, Healthcare, Clean Energy,Water Sanitation & Conservation, Waste Management, Agricultural, Food Security and Financial InclusionEntities formed by the split-up or reconstruction of an existent business unit are ineligible under the PolicyPage 2716 December 2019
Incentives offeredSr.No.Particulars1SGST reimbursement2Stamp Duty andRegistration Feesreimbursement3Quality Testing assistance4Patent filing assistanceAdditional details 5Other incentives Page 2816 December 2019100% reimbursement of Net SGST subject to the condition thatinput credit for the same is not available to the customers100% reimbursement for first 3 years50% reimbursement for subsequent 3 yearsAggregation of business places supplied by private placesthrough a common platform may also be permittedAssistance of 80% of quality testing costs incurred by startupsat BIS-accredited facilities80% rebate in filing costsUp to INR 2 Lakh for Indian patents and up to INR 10 Lakhs forinternational patentsSelf certification for select compliances and norms, withexemption from inspections for 7 yearsRelaxation from norms under Maharashtra Shops andEstablishments ActStartups in the manufacturing sector are exempt from the “priorexperience and/or turnover” criteria, subject to specifiedconditions
Additional non-fiscal benefits and initiativesAccess to LeapfrogMaharashtra Portal The portal will serveas a communicationhub and a singlewindow clearancefacilitatorServes as thenucleus for theState’s startup hubfor enabling effectiveknowledgeexchangeClearances andapprovals can alsobe obtainedefficientlyThe portal launchdate is awaited fromauthoritiesPage 2916 December 2019Designation ofInnovation Clusters Mumbai – Fintechand AVGC Pune – Automotiveand Electronics Nashik –Healthcare Aurangabad –Agro-process Nagpur – CleanEnergyInstitution of Incubatorsand Parks The State will encouragethe development ofincubators throughPrivate, Public orPrivate-PublicPartnership (PPP)methods, incollaboration with theprivate sector andeducational and R&DinstitutionsA multi-facility StartupPark has been proposedin order to consolidateincubators, accelerators,investors, mentors andother stakeholders inone location
Additional non-fiscal benefits and initiativesState-sponsored Funds Fund-of-funds with aninitial corpus of INR100 Crore and a totalcorpus of INR 500CroreInfrastructure fund forincubators,accelerators andother labsEncouragement ofCSR funds and anAlternativeInvestment MarketThe State will supportunits in the socialsector throughcrowdfundingplatformsPage 3016 December 2019Development ofHuman CapitalState SponsoredEvents Startup Week Grand Challenges B-PlanCompetitions Startup Symposia Get-togethers Organization ofworkshops andprogrammes inschools anduniversities Designation ofcommunity buildersand role models Setup of TEDCs Institution ofEdTech platforms
Maharashtra – Incentivesavailable in the FinTechsectorPage 3116 December 2019
Definition of a FinTech Startup As per the Government Resolution (GR) entitled Setting up of Global Fintech Hub andimplementation of Fintech policy,“FinTech startups are establishments that use technology and innovative businessmodels in delivering of financial products and services and having annual turnover upto (INR) 25 Crores” Additionally, startups in the FinTech sector must have a registered office in the State ofMaharashtra Incentives granted to FinTech startups are over and above the benefits provided underthe Maharashtra Start up and Innovation Policy, 2018 The Policy also seeks to provide an impetus for the set up of a Global Fintech hub andSmart Fintech centres Units established as part of Smart FinTech centres are entitled to the same incentiveswhich are granted to IT/ITES units under the Maharashtra IT/ITES Policy, 2015.Additional information on Smart FinTech centre benefits are provided in the ensuingslidesPage 3216 December 2019
Incentives granted to FintechunitsPage 3316 December 2019
Incentives offeredFintech unitsSr.No.ParticularsAdditional details 100% reimbursement up to INR 3 Lakhs per annum for 3 years The reimbursement is over and above the incentives provided under the prevailing StateIT/ITES Policy 100% reimbursement capped at INR 3 Lakhs per year for 3 yearsReimbursement ofexpenditure towardshosting infrastructure1 The assistance is provided for cloud space that is maintained, operated and managedby a cloud storage service provider, subject to additional criteria The cloud service providers must be empanelled as per the cloud policy issued underDIT GR dated 19 January 2018 with rates finalized by DIT1SGST reimbursement 3100% reimbursement capped at INR 4 Lakhs per annum for up to 3 years Applicable for early stage startups with annual turnover of INR 5 CroresReimbursement ofexhibition/global1eventparticipation fee 450% reimbursement subject to a ceiling of INR 5 Lakhs per unit Limited to two events 100% reimbursement for first 3 years5Stamp Duty andRegistration Feesreimbursement 2 50% reimbursement for subsequent 3 years Aggregation of business places supplied by private places through a common platformmay also be permitted Assistance of 80% of quality testing costs incurred by startups at BIS-accreditedfacilities 80% rebate in filing costs Up to INR 2 Lakh for Indian patents and up to INR 10 Lakhs for international patents12Internet and electricitycharges reimbursement16Quality Testing assistance7Patent filing assistance221.Incentives offered under the Fintech GR2.Incentives offered under the Maharashtra State Innovative startup Policy 2018, which are granted over and above the benefits under the Fintech GRPage 3416 December 2019
Gujarat Scheme ForAssistance Of Startups /Innovation, 2015Page 3516 December 2019
Gujarat Scheme for Assistance of Startups /Innovation, 2015IntroductionPolicy Title &Eligible Entities Gujarat Scheme for Assistance for Start ups/Innovation, 2015 – 2020 Individuals with an innovate idea or universities, educational institutions,incubation centres, R&D institutions, Public Sector Units (PSUs) andprivate establishments that support and mentor innovators are eligibleCriteria forRecognition asEligible StartupUnit [a] Incorporated as a Private Limited Company, Partnership or LimitedLiability Partnership for not more than 10 years from the date ofregistration/incorporation Maximum annual turnover of INR 100 Crore since incorporationCriteria forRecognition asEligible StartupUnit [a]Definition ofInnovative ProjectPage 3616 December 2019 The Unit is working towards innovation, development or improvement ofproducts, processes or services [OR] A scalable business model with a high potential of employment generationor wealth creation Units formed through a split up or reconstruction of an existing entity areineligible “Innovation is the process of introducing new or making changes withupdated technology, large and small, radical and incremental, to products,processes, and services that results in the introduction of something newand innovative products”
Gujarat Scheme for Assistance of Startups /Innovation, 2015A. Assistance for InnovationSr.No.ParticularsIncentive Amount1Sustenance allowance for innovatorINR 10,000 per month for 1 year2Assistance for mentoring servicesUp to INR 5 Lakh3Assistance for procuring raw material and othercomponents pertinent to the innovative processUp to INR 10 LakhB. Assistance once idea is conceptualizedSr.No.ParticularsIncentive Amount1Net VAT/SGST Reimbursement80% for 5 years up to 70% of eligiblefixed capital investment*2Marketing and Publicity Assistance for introduction ofproduct to the marketUp to INR 10 Lakh*Computation of Net VAT/SGST will exclude the additional tax payment and reduction in Input tax credit, if anyAdditional benefits include Provision of mentor services Permission for the innovator to utilise the facilities in the eligible institution Select innovators will receive free access to institutions that include university libraries, government laboratories,Centres of Excellence and PSUsPage 3716 December 2019
Karnataka Startup Policy,2015Page 3816 December 2019
Karnataka Startup Policy, 2015IntroductionPolicy Title &Validity PeriodEligibility of Units The Policy is only applicable to technology based, startup unitsAdditional criteria pertaining to the unit’s tenure, location, employmentand exit clause have been outlined in the ensuing slide Startup Units are eligible for incentives provided under various sectorspecific policies issued by the State of Karnataka, which include the StateIndustrial Policy and the Karnataka i4 PolicyAdditional benefits are also provided under the startup PolicyBenefits Available Key Non-FiscalIncentives Page 3916 December 2019Karnataka Startup Policy, 2015 – 2020Valid for 5 years or until the issuance of a replacement PolicySetting up incubators such as theNew Age Incubation Network(NAIN) and Technology BusinessIncubators (TBIs)Early stage funding for promisingventures Creation of fund-of-funds forinvestments in venture fundsEstablishment of CommonInstrumentation Facilities (CIFs)for public use
Karnataka Startup Policy, 2015Definition of a StartupEligible UnitsIneligible Units Nature: The startup unit must be technologybased, which means it must fulfil either of thefollowing: Create a technology based product or service Use technology for enhancing the functionalityor reach of an existing product or service Units formed by the demerger or reconstitution of abusiness currently in existence Tenure: The unit should not have been registeredor incorporated for more than four years prior tosubmission of any incentive application. The limithas been extended to 7 years for entities in theBiotechnology sector Location: The entity must be registered inKarnataka under the Karnataka Shops andCommercial Establishment Act, 1961 Employment: At least 50% of the total workforce(except contract employees) must be hired fromKarnataka Exit Clause: the unit becomes ineligible for availingbenefits after earning a revenue of INR 50 CrorePage 4016 December 2019 A subsidiary of a firm in the State except for the subsidiary of a startup that isqualified as a startup whether by itself or as acombined entity A merged entity within the State, with the exceptionof a combined entity that fulfils the aforementionedcriteria A franchisee of an existing business in the State Units promoted by, sponsored by, or related to anindustrial group in the State whose group turnoverexceeds INR 300 Crore A holding company should not derive more than50% of its income from investments and loans
Karnataka Startup Policy, 2015IncentivesSr.No.123Page 41ParticularsIncentive AmountReimbursement of Net VAT/SGST(paid by incubated startup company)Reimbursement of VAT/SGST(on goods supplied to the incubatoror incubatee)Service Tax reimbursement(levied to startups incubated in Stateincubators and CIFs; annualturnover not to exceed INR 50 lakh100% reimbursement capped atINR 50 Lakh or upto 3 years16 December 2019100% reimbursement100% reimbursement
Challenges faced by a Startup
Challenges1. Subsidiary entities may not be ableto obtain startup recognition;2. Innovation is not a measuredcriteria;3. People generally believe startupsare just about thinking about a newidea or plan. But in reality,execution of such plan is morenecessary than just thinking aboutit;4. The view or perspective of thegovernment on startup India plan isquite short-term in nature. It doesnot look at the long-term path of thestartups;Page 4316 December 20195. For the success of any newbusiness, competent workforce isnecessary. But in case of startups,skilled workforce is not possible dueto the lack of funds at the initialphase;6. The risk of reaching failure isgreater in the startups as comparedto other organizations. It is becausethey tend to take steps quite fast;7. Co-ordination betweenDepartments;8. Best international practice;9. Attitude towards failure
Role of a CA
Role of a CAEnsureEnsure completion ofannual compliancesfor the incentivesavailedLiaiseLiaise with thegovernment authority toavail the incentivesApplyHelp the client tocompile theinformation andapplyPage 4516 December 2019UnderstandUnderstanding andanalyzing the variousincentives offered by theState and CentralGovernmentEvaluateEvaluate the nature and quantumof incentives available to theclientAdviseAdvise to ensure maximumincentives can be availed
Questions please?Page 4616 December 2019
Startup Index of Nations & Regions Ranking of Countries on Share of Billion Dollar Startups (Unicorns) Rank Country Share of Unicorns 1 United States 64.7% 2 China 13.8% 3 India 4.1% 4 United Kingdom 2.5% 5 Singapore 2.2% 6 Sweden 2.1% 7 Ger
