What is a start-up?
The term startup is commonly heard all around you but does everyone know what the difference between a startup and small business is? Startups are formed primarily with the intention of fast growth and to offer something to a very large market. On the other hand small business ventures are set up to offer products and services to a niche market. Though in general sense, there is no need for a huge market, but if the service or product is exceptionally good that can attract lot of customers, then there should be no doubt to think of startups.
Most of the youngsters are very keen to be a part of a startup or an independent business. In this era not many are keen to work in AC rooms by clinging to the comfort. The major attractions for this generation are world challenging works, great lifestyle and big money can also be termed as a myth.
How can my venture get recognized as a start-up?
Here is the list of specifications to be fulfilled in order for a business to be considered as startup. It can be termed as the salient features of startup and unless each of these requirements is met, it cannot be legally termed as a startup; rather it will be a small business venture.
- Start-up entity/business:
These are specific type of businesses that are technology oriented with the aim of high growth potential. Financing will be the most challenging task of have a startup. The reason for this is investors will expect highest potential rate of return on their investment. This should be met by balancing the risk associated to the business.
- Age of company:
Though there is no specific age tagged to the term of a business to be called as start-up, it totally depends on the growth of the company. Here are some of the factors which can turn a company to be not a startup from being startup.
- 100 or more employees
- 3000 revenue run rate (forward 12 months)
- Worth more than Rs. 30,000 million
- Annual turnover of start-ups:
This totally depends upon the type of industry that the startup is contributing to. Turnover rates from each industry is different, thus annual turnover for all startups cannot be collaborated. However, if the overall annual turnover of any business is over $ Rs. 30,000 million, then it cannot be termed as a startup anymore.
- Highly innovative product or service:
Innovation is the key for any startup venture. Instead of spending millions of upgrading the systems and functions, it is necessary to think innovatively to make use of the resources available to generate more revenue.
- No splitting of existing company allowed:
If you already have existing companies, splitting it to enjoy the benefits of startup firm is not allowed. A business split to be termed as startup is considered as illegal.
Tax exemptions for the start-ups, effective from 2017-18:
- Under Section 80-IAC, the Startup incorporated after April 1, 2016 is eligible for getting 100% tax rebate on profit for a period of 3 years. Also, the annual turnover must not exceed Rs. 25 crores in any financial year upto 31 March 2021
- The startups have to pay Minimum Alternate Tax [MAT] at 18.5% along with the applicable surcharge and cess.
- Exemptions have been made against capital gains. Long term capital gains (LTCG) will be invested by the Government’s special funds. The investment may go up to INR 50 Lakh and the exemptions will be applied for three years
- If the individual holds 50% equity then the company may utilize the invested amount for buying assets before the due date of filing the return
- The domestic companies who hold turnover less than INR 5 Crore in the FY 2014-15 will be liable for 29% tax along with surcharge and other cess. It will be covered under the chapter VI-A
- The Finance Minister has also proposed different taxes for the new domestic manufacturing companies that have been setup on or after 1st March, 2016. Such companies will be taxed at 25% plus with cess and surcharge. The tax is proposed on the conditions if the company do not claim any incentives under profit or investment
Startup India Scheme
This is more like a bub where all activities are controlled by a single point of contact. There is a mobile application made available by PM Narendra Modi which can be used for registering for a Startup India Scheme. The biggest benefit for webpreneurs and entrepreneurs is there is tax exemption for the first 3 years of the startup being launched. State Bank of India has the biggest affiliate with towards this scheme and has even rolled up some application which can be used for registration. Interest rates for this Startup India Scheme will be 12% per annum by SBI. It is called as the Startup Stand up Scheme. All this is to encourage young generations to think innovatively and also to offer a better and developed future for India. The other project is ‘Skill India’; this is concentrated on improving the skills of Indian youths.
Key incentives of Startup India Scheme
Here are some of the key reasons why Startup India Scheme is encouraged among young generations.
- Compliance based on self-certification:
Helps in getting a self-certification of what is saved with the help of a startup business. This also offers great rate of interest for investors.
- Startup India hub:
This is a platform created for entrepreneurs to connect with each other. This service is also made use by advisors, Guides, Mentors, Incubators, Accelerators, Consultants and even venture capital firms.
- Rolling-out of mobile app and portal as a regulatory facilitator:
A portal is made available through mobile app to track all the regulatory facilities. In case of any concerns or questions, direct and quick advice can be achieved.
- Legal support and fast track patent application at lower cost:
By way of these schemes a lot of support and legal assistance is offered by the government to those who are keen on having startup firms.
- Relaxed norms for public procurement of start-ups:
There is lot more of lenience and relaxed procedures for government policies if you are looking to set up a startup firm.
- Faster exit for start-ups:
There is lot more space for easy entry and exit of startups. The policies and procedures are very flexible. Unless there is free entry and exit, no entrepreneurs will find it easy and interesting. Make use of this facility offered in startup for get maximum tax benefits.
- Providing funding support:
Apart from rendering a helping hand on procedures, these schemes will assist in offering financial assistance to those who are looking to have a startup established. Finance is the key for any business and for startups when government of India is ready to offer funding there is no need to worry further. Concentrate on the growth of the startup to achieve break even as early as possible.
- Credit guarantee fund for start-ups:
This is a guaranteed way of credit available from Government in case if you are looking to startup a business in India. Loans are made available through government banks in case of funding requirement. The rate of interest is comparatively less and this also accounts towards tax exemption.
- Tax exemption on capital gains:
There is tax exemption upto 3 years on all capital gains associated to Startups. Upto 50 lakhs there is flexibility offered by the government. This is the most attractive aspect of startups and while youngster are trying to streamline their innovation into this style of business.
- Tax exemption to start-ups for three years:
Three years is the maximum period for which tax exemption is offered by Government on startups. After this period, it will be tax eligible irrespective of the turnover of the business.
3 years period is a fair enough time for startups to have a growth in their business and to either reach break even or to get close to break even.
- Tax exemption on investments above fair market value:
In case if the investments are above the fair market values, there is tax exemption offered on the same by Indian Government. By being a part of the scheme these benefits can be enjoyed by the citizens of India.
- Industry academia incubation and partnerships:
The action plan is divided into 3 parts and they are: Simplification and Handholding, Industry-Academia Partnership and Incubation and Funding Support and Incentives. All these are set up to assist sectors such as agriculture, social sector, manufacturing, healthcare, education.
Eligibility Criteria for availing benefits under Startup India Initiative
Below are the criteria that should be met by the startup firm to be eligible for Startup India initiative benefits:
- It should offer new service, products or process.
- Improve existing products by adding value to workflow and customers.
- Should be supported by recommendations.
- Should be supported by Incubators.
- It should be funded by an Angel fund, Incubation fund, accelerators, Private Equity Fund, Angel network duly registered with SEBI.
- Government of India should promote by any specific scheme to promote innovation.
- Patent should be granted by the Indian Patent and Trademark Office.
- CAPTCHA Code has to be verified in order to ensure it is not an automated system request and the application requires PAN card number to be furnished.
Myths around Startup India Program
Just like everything else, there is a lot of myth around Startup India programs. These are listed below for having clear understanding of what is right and wrong about the program.
- Entrepreneurs are not made but born
- Entrepreneurs are stakers
- Money is the motivation
- All entrepreneurs should be young
- Just having right timing and ESOPs is sufficient
- Life is easy with Startups
- Money is raised real quickly
- I just need to do my own things
- Ideas create startups
- Startups are at the basis of laws of capital
How to plan for Startup India Scheme?
Details that should be furnished for Startup Recognition to claim benefit are listed. This information should be filled in the application form by the applicant who is looking to be a part of the Startup India scheme.
- Nature of the Entity
- Name of the Entity
- Incorporation / Registration No.
- Incorporation / Registration Date
- Full Office Address
- Authorized Representative Details
- Details of Directors
- Supporting Documents and Self-Certification
- Incorporation/ Registration Certificate
- Brief note on innovativeness of products /services offered by the entity
- Confirm if you like to avail Tax benefits?
Those who are looking to be a part of startups because of long working hours in corporates are making a mistake. Most of the startups demand for long working hours, late night working and even weekend jobs as there is a need to achieve lot within short period of time. To be an entrepreneur or a part of startup firms you should be ready to work along with board, team members, customers, regulators and suppliers unlike in big firms where you just have to handle certain set of people.
Also just having ideas will not help in reaching to the goals, there should be enough planning, forecasting, decision making and application of skills and talents in the right form at the right time. Having said all these, it is also very important to be transparent with your team about what you do and what you need to achieve. If you are trying to be too secretive about your ideas and innovation, there will be no room for teamwork and co-workers might feel demotivated and cheated.
Apart from these make sure you are not getting carried away by the blockbuster ideas that will come up in brain storming, always think through everything from a realistic and practicality perspective. Focus on the execution of what is in plan and then look out for way to expand and enhance the performance. Being a startup it is crucial to have the foundation set perfectly for the growth and long-lasting of the startup business. Focus on deliver best products and services with innovation and latest technologies to be successful and to sail through the competition around you.