19 January 2016

Action Plan on 'Startup India'

Background The Action Plan (i.e. Proposed Schemes and

Incentives) is divided across the following areas:
In order to build a strong ecosystem for nurturing
innovation and start-ups in the country that can
1. Simplification and Handholding
drive sustainable economic growth and generate 2. Funding Support and Incentives
large scale employment, the Prime Minister of 3. Industry-Academia Partnership and Incubation
1
India has recently launched the ‘Startup India ’
initiative. This initiative is part of the 19 points The Action Plan: Proposed Schemes and
Action Plan through which the government aims to Incentives
empower start-ups to grow through innovation and
design. 1 Simplification and Handholding

This Action Plan shall accelerate the spreading of 1.1 Compliance Regime based on Self-
the start-up movement across: Certification
 The digital/technology sector to a wide array of
In order to make compliance for start-ups friendly
sectors including agriculture, manufacturing,
and flexible, simplifications are required in the
social sector, healthcare, education, etc.; and
regulatory regime.
 Existing tier I to tier II and tier III cities
including semi-urban and rural areas. Accordingly, start-ups shall be allowed to self-certify
compliance (through the start-up mobile app) with
nine labour and environment laws. In the case of
the labour laws, no inspections will be conducted
_________________ for three years. Startups may be inspected on
receipt of the credible and verifiable complaint of a
1
Startup means an entity, incorporated or registered in India not prior to violation, filed in writing and approved by at least
five years, with the annual turnover not exceeding INR25 crore in any
preceding financial year, working towards innovation, development,
one level senior to the inspecting officer.
deployment or commercialization of new products, processes or services
driven by technology or intellectual property. Provided that such entity is
not formed by splitting up, or reconstruction, of a business already in
existence.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
 In the case of environment laws, start-ups which  Filing for compliances and obtaining information
2
fall under the ‘white category ’, would be able to on various clearances, approvals, etc. required
self-certify compliance, and only random checks
would be carried out in such cases.  Collaborating with various start-up ecosystem
partners.
1.2 Start-up India Hub
 Applying for various schemes being undertaken
The objective is to create a single point of contact under the Startup India Action Plan
for the entire start-up ecosystem and enable
The app shall be made available from 1 April 2016
knowledge exchange and access to funding. The
on all leading mobile/smart devices’ platforms.
Government of India is expected to launch ‘Startup
India Hub’ which is likely to be a key stakeholder in
1.4 Legal Support and Fast-tracking
this vibrant ecosystem and may:
Patent Examination at Lower Costs
 Work in a ‘hub and spoke’ model and
collaborate with central and state The objective is to promote adoption and
governments, Indian and foreign VCs, banks, commercialisation of Intellectual Property Rights
legal partners, universities, R&D institutions, (IPRs) by start-ups by providing access to high-
etc. quality intellectual property services and
resources, including fast-track examination of
 Assist start-ups through their lifecycle with
specific focus on obtaining financing, feasibility
patent applications and rebate in fees.
testing, business structuring advisory, etc. The scheme for Startup Intellectual Property
Protection (SIPP) shall facilitate the filing of
 Organise mentorship programmes in
patents, trademarks and designs by innovative
collaboration with government organisations,
educational institutions, etc. to foster
start-ups. Various measures, inter alia, being taken
innovation. in this regard include:

 The patent application of start-ups shall be fast-

1.3 Rolling-out of the Mobile App and tracked for examination and disposal.
the Portal
 A panel of ‘facilitators’ shall be empanelled by
The objective of rolling-out of the mobile app and the Controller General of Patents, Designs and
the portal is to serve as a single platform for start- Trademarks (CGPDTM), who shall also
ups for interacting with the government and
regulate their conduct and functions. Facilitators
regulatory bodies.
will be responsible for providing general
Towards these efforts, the government shall advisory on different IPRs as also information
introduce a mobile app to provide on-the-go on protecting and promoting IPRs in other
accessibility, inter alia, for: countries.

 Backend integration with the Ministry of  The Central Government shall bear the entire
Corporate Affairs and Registrar of Firms for fees of the facilitators for any number of
smooth information exchange and processing patents, trademarks or designs that a start-up
of the registration application. may file, and they shall bear the cost of only the
statutory fees payable.
 Tracking the status of the registration
application and anytime downloading of the  Startups shall be provided an 80 per cent
registration certificate. rebate in the filing of patents vis-à-vis other
companies.
______________
2
As defined by the Central Pollution Control Board
The scheme is being launched initially on a pilot
basis for one year; based on the experience gained,
further steps shall be taken.
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International”), a Swiss entity. All rights reserved.
 1.5 Relaxed Norms of Public In order to provide funding support to startups, the
Procurement for Start-ups government is expected to set up a fund with an
initial corpus of INR25 billion and a total corpus of
The objective is to provide an equal platform to INR100 billion over a period four years (i.e. INR25
start-ups (in the manufacturing sector) vis-à-vis the billion per year). The fund will be in the nature of
experienced entrepreneurs/companies in public fund of funds, which means that it will not invest
procurement directly into start-ups, but shall participate in the
capital of SEBI registered Venture Funds.
In order to promote start-ups, the government shall
exempt start-ups (in the manufacturing sector) Key features of the fund of funds are highlighted
from the criteria of ‘prior experience/turnover’ below:
without any relaxation in quality standards or
technical parameters. The start-ups will also have  The fund of funds shall be managed by a board
to demonstrate the requisite capability to execute with private professionals drawn from industry
the project as per the requirements and should bodies, academia, and successful start-ups
have their manufacturing facility in India.
 Life Insurance Corporation (LIC) shall be a co-
1.6 Faster Exit for Startups investor in the fund of funds

The objective is to make it easier for start-ups to  The fund of funds shall contribute to a
wind up operations. maximum of 50 per cent of the stated daughter
fund size. The fund of funds shall have
The Insolvency and Bankruptcy Bill 2015 (‘IBB’), representation on the governance
tabled in the Lok Sabha in December 2015 has structure/board of the venture fund based on
provisions for fast track and / or voluntary closure
the contribution made.
of businesses. The IBB, inter alia, provides for the
following:
 The fund shall ensure support to a broad mix of
 Start-ups meeting such criteria as may be sectors.
specified may be wound up within a period of
90 days from making an application for 2.2 Credit Guarantee Fund for Start-ups
winding up on a fast track basis.
The objective is to catalyse entrepreneurship by
providing credit to innovators across all sections of
 In such instances, an insolvency professional
society.
shall be appointed for the start-up, who shall
be in charge of the company. Debt funding to start-ups is also perceived as a
high-risk area and to encourage banks and other
 On the appointment of the insolvency lenders to provide Venture Debts to start-ups, credit
professional, the liquidator shall be responsible guarantee mechanism through National Credit
for the swift closure of the business, the sale of Guarantee Trust Company (NCGTC)/ SIDBI is
assets and repayment of creditors in being envisaged with a budgetary Corpus of
accordance with the distribution waterfall set INR500 crore per year for the next four years.
out in the IBB.
2.3 Tax Exemption on Capital Gains
2 Funding Support and Incentives
The objective is to promote investments into start-
ups by mobilising the capital gains arising from the
2.1 Providing Financial Support sale of capital assets.
through a Fund of Funds
With this objective, the exemption shall be given to
The objective is to provide funding support for persons who have capital gains during the year, if
development and growth of innovation-driven they have invested such capital gains in the fund of
enterprises.

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International”), a Swiss entity. All rights reserved.
 funds recognised by the government. This initiative 2.6 Other conditions
may augment the funds available to various
VCs/AIFs for investment in start-ups. A start-up shall be eligible for tax benefits only after
it has obtained certification from the Inter-Ministerial
In addition, existing capital gain tax exemption for Board set-up for such purpose.
investment in newly formed manufacturing Micro,
Small and Medium Enterprises (MSMEs) by 3 Industry-Academia Partnership and
individuals shall be extended to all start-ups.
Currently, such an entity needs to purchase ‘new
Incubation
assets’ with the capital gain received to avail such
an exemption. Investment in ‘computer or 3.1 Organising start-up Fests
computer software’ (as used in core business
activity) shall also be considered as the purchase The objective is to galvanise the start-up ecosystem
of ‘new assets' to promote technology-driven start- and to provide it with national and international
ups. visibility.

To bolster the start-up ecosystem in India, the

2.4 Tax Exemption to Startups for
government is proposing to introduce start-up fests
three years at national and international stages. The fests shall
have activities such as sessions to connect with
The objective is to promote the growth of start-ups investors, mentors, incubators and start-ups,
and address working capital requirements. showcasing innovations, exhibitions and product
launches, etc.
With a view to stimulating the development of
start-ups, its profits should be exempted from
income tax for three years. This fiscal exemption
3.2 Launch of Atal Innovation Mission
shall facilitate the growth of business and meet the
The objective is to serve as a platform for promotion
working capital requirements during the initial
of leading innovation hubs and, start-up businesses
years of operations. The exemption shall be
and other self-employment activities, particularly in
available subject to non-distribution of dividend by
technology-driven areas
the start-up.
The Atal Innovation Mission (AIM) shall have two
2.5 Tax Exemption on Investments core functions:
above Fair Market Value
 Entrepreneurship promotion through Self-
The objective is to encourage seed-capital Employment and Talent Utilisation (SETU),
investment in start-ups. wherein the innovators would be supported to
become successful entrepreneurs
Under the Income Tax Act, 1961 (the Act), where a
start-up (company) receives any consideration for
 Innovation promotion: to provide a platform
issue of shares which exceeds the Fair Market
where innovative ideas are generated
Value (FMV) of such shares, such excess
consideration is taxable in the hands of a recipient
as ‘Income from Other Sources’. 3.3 Harnessing Private Sector Expertise
for Incubator Setup
Where the idea is at a development stage, FMV
may be significantly lower than the value at which The government is expected to create a policy and
the capital investment is made. This results in the framework for setting-up of incubators across the
tax being levied under Section 56(2)(viib) of the country in a public-private partnership.
Act.
Accordingly, the government shall encourage
Currently, investment by venture capital funds in setting up of;
start-ups is exempted from operations of this
provision. The same shall be extended to the  For new incubators in existing institutions,
investment made by incubators in the start-ups.
funding support shall be provided by central
government, state government and the private
sector.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
  For new private sector incubators, a grant shall  Biotech Equity Fund in partnership with
be provided by the central government for National and Global Equity Funds will provide
incubators established in existing institutions. financial assistance to young Biotech start-ups

In both these settings, the incubator shall be  Encouraging and leveraging global partnerships
managed and operated by the private sector.
3.7 Launching of Innovation Focusssed
NITI Aayog shall provide the funding for setting up Programmes for Students
of the Incubators Ayog as part of Atal Innovation
Mission. The objective is to foster a culture of innovation in
the field of Science and Technology amongst
3.4 Building Innovation Centres at students.
National Institutes
In order to promote research and innovation among
The objective is to propel successful innovation young students, the government shall implement
through augmentation of incubation and R&D the following measures:
efforts.
 Innovation core: This programme shall be
In order to augment the incubation and R&D initiated to target school kids.
efforts in the country, the government will set
up/scale up new centres of innovation and  NIDHI: A grand challenge programme (‘National
entrepreneurship at national institutes. Initiative for Developing and Harnessing
Innovations) shall be instituted through
3.5 Setting up of New Research Parks Innovation and Entrepreneurship Development
Centres (IEDCs) to support and award student
The objective is to propel successful innovation
through incubation and joint R&D efforts between innovations from IEDCs.
academia and industry. The government shall set
up seven new research parks, based on the  Uchhattar Avishkar Yojana: A joint Ministry of
research park setup at IIT Madras, in certain Human Resources Development – Department
institutes with an initial investment of INR100 crore of Science & Technology scheme shall be
each. devised towards fostering ‘very high quality’
research amongst IIT students.
3.6 Promoting Startups in the
Biotechnology Sector 3.8 Annual Incubator Grand Challenge

The objective is to foster and facilitate bio- The objective is to support the creation of effective,
entrepreneurship. well-equipped incubators in India.

In order to promote start-ups in the biotechnology In order to build an effective start-up ecosystem, the
sector, the Department of Biotechnology shall be government is proposing to make forward-looking
implementing the following measures along with its investments towards building effective, well-
Public Sector Undertaking Biotechnology equipped incubators. These incubators would be
Research Assistance Council (BIRAC): given INR100 million each as financial assistance
which may be used for ramping up the quality of
 New Bio-clusters, Bio-Incubators, Technology service offerings. An ‘Incubator Grand Challenge’
Transfer Offices and Bio-Connect offices, will exercise shall be annually carried out for
be set up in research institutes and universities identification of these incubators.
across India

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International”), a Swiss entity. All rights reserved.
 Our comments

‘Start-up India’ is a welcome initiative which can

act as an effective instrument for India’s
transformation through start-ups, technology and
innovation. This transformation can encourage
entrepreneurship among the youth of India and
turn them from jobseekers to job-creators.

Amongst the many incentives bestowed through

this initiative, key ones for start-ups include,
exemption from paying income tax on their profit
for the first three years, a simple exit policy, fast-
tracking of the patent applications, 80 per cent
exemption in patent fee, self-certification based
compliance system, etc. Also, this plan is intended
to put start-ups on a level playing field with the
MSMEs, and a fund worth INR100 billion shall be
created for the same.

A tax and regulatory friendly environment created

through this initiative, may bring new investments
in India, and accelerate its economic growth. It will
be worthwhile to watch out for these incentives
becoming a part of the Act, probably, in the coming
budget.

The government’s action plan has come at a time

when the Indian economy is in need of fresh
capital, better regulatory environment and co-
operative attitude of the relevant departments, and
therefore if implemented in true spirit, it can place
India on a high growth trajectory.

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. All rights reserved.
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