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Startup India Standup India
Action Plan, Eligibility and
Scheme Details

Prime Minister Mr. Narendra Modi announced bunch of benefits

and schemes to promote start-up ecosystem in India. The event
was called 'Startup India, Stand up India'. It has immense importance
because, for starters, it was the first of its kind dialogue between
India's startup community and the government.
Startup India is a flagship initiative of the Government of India,
intended to build a strong ecosystem for nurturing innovation and
Startups in the country. This will drive sustainable economic growth
and generate large scale employment opportunities. The
Government, through this initiative aims to empower Startups to
grow through innovation and design.
In order to meet the objectives of the initiative, Government of
India announced an Action Plan that addresses all aspects of the
Startup ecosystem. With this Action Plan, the Government hopes
to accelerate spreading of the Startup movement from digital/
technology sector to a wide array of sectors including agriculture,
manufacturing, social sector, healthcare, education, etc. and from
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existing tier 1 cities to tier 2 and tier 3 cities including semi-urban

and rural areas.
The Action Plan is divided across the following areas:
• Simplification and Handholding
• Funding Support and Incentives
• Industry-Academia Partnership and Incubation
Since the day, the talk on "Start-up India" scheme has started,
its been a burning question in each entrepreneur's mind, whether
their venture qualifies for these new schemes and benefits
announced. Finally Department of Industrial Policy and Promotion
(DIPP), Government of India has clarified which ventures will qualify
as Start-up to claim the benefits.
Definition of a Start-up (only for the purpose of Government
schemes):

Start-up means:
• An entity, incorporated or registered in India
• Not older than five years,
• Annual turnover does not exceeding INR 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.
It is important to note following points:
• Provided that such entity is not formed by splitting up, or
reconstruction, of a business already in existence.
• Provided also that an entity shall cease to be a Start-up if
its turnover for the previous financial years has exceeded
INR 25 crore or it has completed 5 years from the date of
incorporation/ registration.
• Provided further that a Start-up shall be eligible for tax
benefits only after it has obtained certification from the
  

Startup India Standup India Action Plan, Eligibility and Scheme . . . 3

Inter-Ministerial Board, setup for such purpose.

Some of the key terms used in definition are further clarified
as follows:

MEANING OF AN "ENTITY"
Private Limited Company (under The Companies Act, 2013) or
a Registered Partnership Firm (under The Indian Partnership Act,
1932) or Limited Liability Partnership (under The Limited Liability
Partnership Act, 2008)
A business is covered under the 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.
• The mere act of developing products or services or
processes which do not have potential for commercial-
ization; or undifferentiated products or services or
processes; or products or services or processes with no
or limited incremental value for customers or workflow would
not be covered under this definition.
In order for a "Startup" to be considered eligible, the Startup
should
• be supported by a recommendation (with regard to
innovative nature of business), in a format specified by DIPP,
from an Incubator established in a post-graduate college
in India; or
• be supported by an incubator which is funded (in relation
to the project) from GoI as part of any specified scheme to
promote innovation; or
• be supported by a recommendation (with regard to
innovative nature of business), in a format specified by DIPP,
from an Incubator recognized by GoI; or
  

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• 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.
(DIPP may publish a 'negative' list of funds which are not eligible
for this initiative)

INTER-MINISTERIAL BOARD
An Inter-Ministerial Board setup by DIPP to validate the
innovative nature of the business for granting tax related benefits
Approval from the Inter-Ministerial Board shall not in any manner,
limit or absolve the entity(ies) from any liability incurred in case of
any misrepresentation/ fraud arising from submission of such
application and/ or supporting such application.

STARTUP INDIA, STANDUP INDIA SCHEME - ACTION

PLAN IN DETAIL
Lets look at the 19 items proposed in the Startup India action
plan

Compliance Regime based on Self-Certification

Objective is to reduce the regulatory burden on Startups thereby
allowing them to focus on their core business and keep compliance
cost low.
Regulatory formalities requiring compliance with various labour
and environment laws are time consuming and difficult in nature.
Often, new and small firms are unaware of nuances of the issues
and can be subjected to intrusive action by regulatory agencies. In
order to make compliance for Startups friendly and flexible,
simplifications are required in the regulatory regime.
  

Startup India Standup India Action Plan, Eligibility and Scheme . . . 5

Accordingly, the process of conducting inspections shall be

made more meaningful and simple. Startups shall be allowed to
self-certify compliance (through the Startup mobile app) with 9 labour
and environment laws.
In case of the labour laws, no inspections will be conducted
for a period of 3 years. Startups may be inspected on receipt of
credible and verifiable complaint of violation, filed in writing and
approved by at least one level senior to the inspecting officer. In
case of environment laws, Startups which fall under the 'white
category' (as defined by the Central Pollution Control Board (CPCB))
would be able to self-certify compliance and only random checks
would be carried out in such cases

Startup India Hub

An all-India hub will be created as a single contact point for
start-up foundations in India, which will help the entrepreneurs to
exchange knowledge and access financial aid.
The Government of India has taken various measures to improve
the ease of doing business and is also building an exciting and
enabling environment for these Startups, with the launch of the
"Startup India" movement.
The "Startup India Hub" will be a key stakeholder in this vibrant
ecosystem and will:
- Work in a hub and spoke model and collaborate with Central
& State governments, Indian and foreign VCs, angel
networks, banks, incubators, legal partners, consultants,
universities and R&D institutions
- Assist Startups through their lifecycle with specific focus
on important aspects like obtaining financing, feasibility
testing, business structuring advisory, enhancement of
marketing skills, technology commercialization and
management evaluation
- Organize mentorship programs in collaboration with
government organizations, incubation centers, educational
  

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institutions and private organizations who aspire to foster

innovation.
To all young Indians who have the courage to enter an
environment of risk, the Startup India Hub will be their friend, mentor
and guide to hold their hand and walk with them through this journey

Rollout of Mobile App and Portal

An online portal, in the shape of a mobile application, will be
launched on April 1 to serve as the single platform for Startups for
interacting with Government and Regulatory Institutions for all
business needs and information exchange among various
stakeholders.
Startups often suffer from the uncertainty regarding the exact
regulatory requirements to set up its operations. In order to ensure
that such information is readily available, it is intended that a
checklist of required licenses covering labour licensing, environ-
mental clearances etc. be made available.
Towards these efforts, the Government will introduce a Mobile
App to provide on-the-go accessibility for:
- Registering Startups with Ministry of Corporate Affairs and
Registrar of Firms
- Tracking the status of the registration application. A digital
version of the final registration certificate shall be made
available for downloading through the Mobile App
- Filing for compliances and obtaining information on various
clearances/ approvals/ registrations required
- Collaborating with various Startup ecosystem partners
(venture funds, incubators, academia, mentors etc.)
- Applying for various schemes being undertaken under the
Startup India Action Plan
  

Startup India Standup India Action Plan, Eligibility and Scheme . . . 7

Legal Support and Fast-tracking Patent Examination at

Lower Costs
A fast-track system for patent examination at lower costs is
being conceptualised by the central government. The system will
promote awareness and adoption of the Intellectual Property Rights
(IPRs) by the start-up foundations.
The scheme for Startup Intellectual Property Protection (SIPP)
shall facilitate filing of Patents, Trademarks and Designs by
innovative Startups. Various measures being taken in this regard
include:
- Fast-tracking of Startup patent application
- Panel of facilitators to assist in filing of IP applications.
- The Central Government shall bear the entire fees of the
facilitators for any number of patents, trademarks or designs
that a Startup may file, and the Startups shall bear the
cost of only the statutory fees payable.
- Rebate on filing of application. Startups shall be provided
an 80% rebate in filing of patents vis-a-vis other companies.
The scheme is being launched initially on a pilot basis for 1
year; based on the experience gained, further steps shall be taken.

RELAXED NORMS OF PUBLIC PROCUREMENT FOR

STARTUPS
Typically, whenever a tender is floated by a Government entity
or by a PSU, very often the eligibility condition specifies either
"prior experience" or "prior turnover". Such a stipulation prohibits/
impedes Startups from participating in such tenders.
At present, effective April 1, 2015 Central Government, State
Government and PSUs have to mandatorily procure at least 20%
from the Micro Small and Medium Enterprise (MSME).
In order to promote Startups, Government shall exempt Startups
(in the manufacturing sector) from the criteria of "prior experience/
  

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turnover" without any relaxation in quality standards or technical

parameters. The Startups will also have to demonstrate requisite
capability to execute the project as per the requirements and should
have their own manufacturing facility in India.

Faster Exit for Startups

In the event of a business failure, it is critical to reallocate
capital and resources to more productive avenues and accordingly
a swift and simple process has been proposed for Startups to wind-
up operations. This will promote entrepreneurs to experiment with
new and innovative ideas, without having the fear of facing a complex
and long-drawn exit process where their capital remain interminably
stuck.
The Insolvency and Bankruptcy Bill 2015 ("IBB"), tabled in the
Lok Sabha in December 2015 has provisions for the fast track and
/ or voluntary closure of businesses. In terms of the IBB, Startups
with simple debt structures or those meeting such criteria as may
be specified may be wound up within a period of 90 days from
making of an application for winding up on a fast track basis.
On appointment of the insolvency professional, the liquidator
shall be responsible for the swift closure of the business, sale of
assets and repayment of creditors in accordance with the distribution
waterfall set out in the IBB.

Providing Funding Support through a 'Fund of Funds' with a

Corpus of INR 10,000 crore
Government will set up a fund with an initial corpus of INR
2,500 crore and a total corpus of INR 10,000 crore over a period 4
years (i.e. INR 2,500 crore per year).
The Fund will be in the nature of Fund of Funds, which means
that it will not invest directly into Startups, but shall participate in
the capital of SEBI registered Venture Funds. Key features of the
Fund of Funds are highlighted below:
- The Fund of Funds shall be managed by a Board with
private professionals drawn from industry bodies, academia,
  

Startup India Standup India Action Plan, Eligibility and Scheme . . . 9

and successful Startups

- Life Insurance Corporation (LIC) shall be a co-investor in
the Fund of Funds
- The Fund of Funds shall contribute to a maximum of 50%
of the stated daughter fund size. In order to be able to
receive the contribution, the daughter fund should have
already raised the balance 50% or more of the stated fund
size as the case maybe.
- The Fund shall ensure support to a broad mix of sectors
such as manufacturing, agriculture, health, education, etc.

Credit Guarantee Fund for Startups

In order to overcome traditional Indian stigma associated with
failure of Startup enterprises in general and to encourage
experimentation among Startup entrepreneurs through disruptive
business models, credit guarantee comfort would help flow of
Venture Debt from the formal Banking System. Debt funding to
Startups is also perceived as high risk area and to encourage Banks
and other Lenders to provide Venture Debts to Startups, Credit
guarantee mechanism through National Credit Guarantee Trust
Company (NCGTC)/ SIDBI is being envisaged with a budgetary
Corpus of INR 500 crore per year for the next four years.

Tax Exemption on Capital Gains

Government wants to promote investments into Startups by
mobilizing the capital gains arising from sale of capital assets.
With this objective, exemption shall be given to persons who have
capital gains during the year, if they have invested such capital
gains in the Fund of Funds recognized by the Government.
This will augment the funds available to various VCs/AIFs for
investment in Startups. In addition, existing capital gain tax
exemption for investment in newly formed manufacturing MSMEs
by individuals shall be extended to all Startups. Currently, such an
entity needs to purchase "new assets" with the capital gain received
to avail such an exemption.
  

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Investment in 'computer or computer software' (as used in core

business activity, like an accounting software) shall also be
considered as purchase of 'new assets' in order to promote
technology driven Startups.

Tax Exemption to Startups for 3 years

With a view to stimulate the development of Startups in India
and provide them a competitive platform, it is imperative that the
profits of Startup initiatives are exempted from income-tax for a
period of 3 years. This fiscal exemption shall facilitate growth of
business and meet the working capital requirements during the
initial years of operations. The exemption shall be available subject
to non-distribution of dividend by the Startup.

Tax Exemption on Investments above Fair Market Value

Under The Income Tax Act, 1961, where a Startup (company)
receives any consideration for issue of shares which exceeds the
Fair Market Value (FMV) of such shares, such excess consideration
is taxable in the hands of recipient as Income from Other Sources.
In the context of Startups, where the idea is at a conceptual-
ization or development stage, it is often difficult to determine the
FMV of such shares. In majority of the cases, FMV is also
significantly lower than the value at which the capital investment is
made. This results into the tax being levied under section 56(2) (viib).
Currently, investment by venture capital funds in Startups is
exempted from operations of this provision. The same shall be
extended to investment made by incubators in the Startups.

Organizing Startup Fests for Showcasing Innovation and

Providing a Collaboration Platform
To bolster the Startup ecosystem in India, the Government is
proposing to introduce Startup fests at national and international
stages. These fests would provide a platform to Startups in India to
showcase their ideas and work with a larger audience comprising
of potential investors, mentors and fellow Startups.
  

Startup India Standup India Action Plan, Eligibility and Scheme . . . 11

As part of "Make in India" initiative, Government proposes to:

- Hold one fest at the national level annually to enable all
the stakeholders of Startup ecosystem to come together
on one platform.
- Hold one fest at the international level annually in an
international city known for its Startup ecosystem.
The fests shall have activities such as sessions to connect
with investors, mentors, incubators and Startups, showcasing
innovations, exhibitions and product launches, pitches by Startups,
mentoring sessions, curated Startup walks, talks by disruptive
innovators, competitions such as Hackathon, Makerspace, etc.,
announcements of rewards and recognitions, panels and conferences
with industry leaders, etc.

Launch of Atal Innovation Mission (AIM) with Self-

Employment and Talent Utilization (SETU) Program
The Atal Innovation Mission (AIM) shall have two core functions:
- Entrepreneurship promotion through Self-Employment and
Talent Utilization (SETU), wherein innovators would be
supported and mentored to become successful
entrepreneurs
- Innovation promotion - to provide a platform where innovative
ideas are generated
The main components proposed to be undertaken as part of
the mission include:
Entrepreneurship promotion:
• Establishment of sector specific Incubators including in
PPP mode (refer #14 of this Action Plan)
• Establishment of 500 Tinkering Labs
• Pre-incubation training to potential entrepreneurs in various
technology areas in collaboration with various academic
institutions having expertise in the field
  

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• Strengthening of incubation facilities in existing incubators

and mentoring of Startups
• Seed funding to potentially successful and high growth
Startups
Innovation promotion:
• Institution of Innovation Awards (3 per state/UT) and 3
National level awards
• Providing support to State Innovation Councils for
awareness creation and organizing state level workshops/
conferences
• Launch of Grand Innovation Challenge Awards for finding
ultra-low cost solutions to India's pressing and intractable
problems

Harnessing Private Sector Expertise for Incubator Setup

To ensure professional management of Government sponsored
/ funded incubators, Government will create a policy and framework
for setting-up of incubators across the country in public private
partnership.
Government shall encourage setting up of;
• 35 new incubators in existing institutions. Funding support
of 40% (subject to a maximum of INR 10 crore) shall be
provided by Central Government for establishment of new
incubators for which 40% funding by the respective State
Government and 20% funding by the private sector has
been committed. The incubator shall be managed and
operated by the private sector.
• 35 new private sector incubators. A grant of 50% (subject
to a maximum of INR 10 crore) shall be provided by Central
Government for incubators established by private sector in
existing institutions. The incubator shall be managed and
operated by the private sector.
  

Startup India Standup India Action Plan, Eligibility and Scheme . . . 13

The funding for setting up of the incubators shall be provided

by NITI Aayog as part of Atal Innovation Mission (refer #13 of this
Action Plan). Participating departments and agencies for setting
up of new incubators shall be Department of Science and
Technology, Department of Biotechnology, Department of Electronics
and Information Technology, Ministry of Micro, Small and Medium
Enterprises, Department of Higher Education, Department of
Industrial Policy and Promotion and NITI Aayog.

Building Innovation Centres at National Institutes

In order to augment the incubation and R&D efforts in the
country, the Government will set up/ scale up 31 centres (to provide
facilities for over 1,200 new Startups) of innovation and
entrepreneurship at national institutes, including:
• Setting-up 13 Startup centres: Annual funding support of
INR 50 lakhs (shared 50:50 by DST and MHRD) shall be
provided for three years for encouraging student driven
Startups from the host institute.
• Setting-up/ Scaling-up 18 Technology Business Incubators
(TBIs) at NITs/IITs/IIMs etc. as per funding model of DST
with MHRD providing smooth approvals for TBI to have
separate society and built up space

Setting up of 7 New Research Parks

The Government shall set up 7 new Research Parks in institutes
indicated below with an initial investment of INR 100 crore each.
The Research Parks shall be modeled based on the Research
Park setup at IIT Madras.
IIT Guwahati, IIT Hyderabad, IIT Kanpur, IIT Kharagpur, IISc
Bangalore, IIT Gandhinagar and IIT Delhi.

Promoting Startups in the Biotechnology Sector

In order to promote Startups in the sector, The Department of
Biotechnology shall be implementing the following measures along
  

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with its Public Sector Undertaking Biotechnology Research

Assistance Council (BIRAC):
Bio-incubators, Seed Fund and Equity Funding:
• 5 new Bio-clusters, 50 new Bio-Incubators, 150 technology
transfer offices and 20 Bio-Connect offices will be set up
in research institutes and universities across India.
• Biotech Equity Fund - BIRAC AcE Fund in partnership
with National and Global Equity Funds (Bharat Fund, India
Aspiration Fund amongst others) will provide financial
assistance to young Biotech Startups.

Encouraging and leveraging global partnerships:

• Bengaluru-Boston Biotech Gateway to India has been
formed. Through this initiative, a range of institutes in
Boston (Harvard/ MIT) and Bengaluru will be able to connect
to share ideas and mentor the entrepreneurs especially in
the areas of Genomics, Computational Biology, Drug
Discovery and new vaccines.
• Amplification of Bio-entrepreneurship through BIRAC
Regional Entrepreneurship Centres (BREC). Department
of Biotechnology shall set up 5 Regional centres or Mini-
BIRACs in the next 5 years.

Launching of Innovation Focused Programs for Students

In order to promote research and innovation among young
students, the Government shall implement the following measures:
• Innovation Core. Innovation Core program shall be initiated
to target school kids with an outreach to 10 lakh innovations
from 5 lakh schools. One lakh innovations would be targeted
and the top 10,000 innovations would be provided prototyping
support. Of these 10,000 innovations, the best 100 would
be shortlisted and showcased at the Annual Festival of
Innovations in the Rashtrapati Bhavan.
  

Startup India Standup India Action Plan, Eligibility and Scheme . . . 15

• NIDHI: A Grand Challenge program ("National Initiative for

Developing and Harnessing Innovations) shall be instituted
through Innovation and Entrepreneurship Development
Centres (IEDCs) to support and award INR 10 lakhs to 20
student innovations from IEDCs.
• Uchhattar Avishkar Yojana: A joint MHRD-DST scheme
which has earmarked INR 250 crore per annum towards
fostering "very high quality" research amongst IIT students.
The funding towards this research will be 50% contribution
from MHRD, 25% from DST and 25% from industry. This
format has been devised to ensure that the research and
funding gets utilized bearing in mind its relevance to the
industry. Each project may amount to INR 5 crore only.
This scheme will initially apply to IITs only

Annual Incubator Grand Challenge

The Government is proposing to make forward looking
investments towards building world class incubators. In its first
phase, the aim is to establish 10 such incubators. To enable this,
GoI shall identify and select 10 incubators who have the potential
to become world class. These incubators would be given INR 10
crore each as financial assistance which may be used for ramping
up the quality of service offerings.
The incubators shall also become reference models for other
incubators aspiring to offer best-in-class services. Video interviews
of these incubators would be showcased on the Startup India portal.
An "Incubator Grand Challenge" exercise shall be carried out for
identification of these incubators.