AN OVERVIEW OF

GOVERNMENT INCENTIVES
FOR STARTUPS
Presented By: CA Bhavesh Thakkar
December 2019
Background
Indian economy: a dichotomy

3rd 5th Projected to

overtake the US by
3
Annual growth in
FDI equity inflow
for FY 2020 4
Largest in the World
by Purchasing
Power Parity 1
Largest in the
World by
Nominal GDP2
2030 28%
Ease of Doing Business Rankings 2019
► India’s position among 190 countries
5
► 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 6

Sources: Sources:
1. World Bank Database – Ranking of countries by Gross Domestic Product in 4. June 2019 Quarterly Fact Sheet – Department of Industrial Policy and
2018, World Bank Website Promotion, Government of India
2. World Bank Database – Nominal GDP Indicator, World Bank Website 5. Rankings – Doing Business, World Bank Website
3. Report by economists from Standard Chartered Plc 6. Invest India Website

Page 3 16 December 2019

Background

Quarterly GDP Growth (%)#

8
7 8
6
8
7 6.6
5 6
5.8
4 5
4
3
2 2
1
0 0
Apr '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% to
5%.
► 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 preferred
destination 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 4 16 December 2019

Overview of performance of State

Best
Performer
100 Percentile
❖GUJARAT

Top
Performers
With more than 85
❖KARNATAKA ❖ODISHA Percentile but less than
❖KERALA ❖RAJASTHAN 100 Percentile

Leaders
❖ANDHRA PRADESH ❖MADHYA PRADESH With more than or
equal to 70 Percentile
❖BIHAR ❖TELANGANA
but less than or equal
❖CHATTISGARH to 85 Percentile

Page 5 16 December 2019

Overview of performance of State

Emerging ❖ASSAM ❖MAHARASHTRA ❖TAMIL NADU

States With more than 50
❖DELHI ❖UTTARAKHAND ❖JAMMU & KASHMIR Percentile but less
❖GOA ❖PUNJAB than 70 Percentile

Beginners ❖CHANDIGARH ❖PUDUCHERRY

With less than or
❖MANIPUR ❖SIKKIM equal to 25
❖MIZORAM ❖TRIPURA Percentile
❖NAGALAND

Page 6 16 December 2019

Make in India
Fiscal incentives

Fiscal Incentives

Centre State

Sectoral Policy
Sectoral Policy
Foreign Trade (Information and
(Textile, Industrial Policy
Policy Technology,
Electronics, etc.)
Solar, etc.)

Page 8 16 December 2019

Fiscal incentives
Based on nature

Fiscal Incentives

Expenditure
Capital Linked Sales Linked
Linked

Exemption/ Cash Domestic Sales –

Cash Back Exports - Scrips
Back Sales Tax linked

Page 9 16 December 2019

 Make in India v/s Made in India

Page 10 16 December 2019

Global innovation index
Global innovation index

Pertinent to India, the following information has been extracted from the Global
Innovation Index:

1. We stand at 52 rank out of 152 3. Retains the top position within the
countries in the year 2019 as opposed Central and South Asia Region
to 57th rank in the year 2018 (followed by Iran and Kazakhstan)

2. Highly scored in the following 4. Science & Technology clusters

parameters:
a) ICT services exports 5. Bengaluru, Mumbai and New Delhi
b) Graduates in science and
engineering 6. Maintained the momentum for
c) Quality of universities outperforming on innovation relative to
d) Gross Capital Formation GDP for the 9th consecutive year
(economy-wide investments
measure) 7. Currently, there are 25,739 DPIIT
e) Creative goods exports recognised startups in the DPIIT

Page 12 16 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 Germany 2.0%
8 Canada 1.6%
9 South Korea 1.5%
10 Russia 1.0%

Reference: https://www.marshall.usc.edu/faculty-research/centers-excellence/center-global-innovation/startup-index-nations-regions

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Best practices followed by other Countries
What is the distinguishing factor as compared to India?
Country Reason
Unites States • Robust angel and venture funding
of America • Best R&D
United • Ease of incorporating a company; it can be done as fast as within an
Kingdom hour and will cost you £14 or about $20 [approx.]
• Various tax benefits
Canada • Unlimited access to world-class talent pools
• Solid entrepreneurial culture
• Reasonable rental market & a global network of clients.
• Generous grants from the government & a startup friendly tax
system.
New Zealand • Skilled labour force that is not too expensive
• There are no payroll, capital gains or social security taxes involved
• Incorporating a business takes a day while registering a property
could take as little as two days
• It also has a wealth of information readily available online through
Statistics New Zealand that can help you run thorough research into
whatever industry you would like to invest in.

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What, Who and How of Startup in India
Startup in India

► Startup India is a flagship initiative of the Government of India, intended to

build a strong ecosystem that is conducive for the growth of startup
businesses, to 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.

► For availing various benefits under the Startup India scheme, an entity would
be required to be recognized by Department of Industrial Policy and
Promotion (DIPP) as a startup by applying at
https://www.startupindia.gov.in/content/sih/en/startupgov/startup-recognition-
page.html.

Page 16 16 December 2019

Who can be a Startup?

1. If it is incorporated as a private limited company or registered as a

partnership firm or a limited liability partnership in India

2. Up to ten years from the date of its incorporation/registration

3. If its turnover for any of the financial years since incorporation/registration has
not exceeded INR 100 Crores

4. If it is working towards innovation, development or improvement of products

or processes or services, or if it is a scalable business model with a high
potential of employment generation or wealth creation

Note: An entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’.

Page 17 16 December 2019

Startup registered on the startup India website
vs DIPP recognized startups
► A startup which has a profile on the startup India website is considered a
registered startup on the portal.

► These startups can apply for various acceleration, incubator/mentorship

programmes and other challenges on the website along with getting an
access to resources like Learning and Development Program, Government
Schemes, State Polices for startups, and pro-bono services.

► For DIPP-recognition, the startups have to apply

at https://www.startupindia.gov.in/content/sih/en/startupgov/startup-
recognition-page.html to avail benefits mentioned in the above slides

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Cities ahead in the startup venture in India
Cities ahead in the startup venture in India

Bengaluru Delhi/NCR Mumbai Chennai

Hyderabad Pune Ahmedabad

Kochi

Kolkata

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Startup India: Initiatives by Central Government
Benefits under Startup India Initiative

The benefits provided to recognized startups under the Startup India initiative
are:
1. Self-Certification: Self-certify and comply under 3 Environmental & 6 Labour
Laws

2. Tax Exemption: Income Tax exemption for a period of 3 consecutive years

and exemption on capital and investments above Fair Market Value

3. Easy Winding of Company: In 90 days under Insolvency & Bankruptcy

Code, 2016

4. Startup Patent Application & IPR Protection: Fast track patent application
with up to 80% rebate in filling patents

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Benefits under Startup India Initiative

5. Easier Public Procurement Norms: Exemption from requirement of earnest

money deposit, prior turnover and experience requirements in government
tenders

6. SIDBI Fund of Funds: Funds for investment into startups through Alternate
Investment Funds

7. Apply for tenders: Startups can apply for government tenders. They are
exempted from the “prior experience/turnover” criteria applicable for normal
companies answering to government tenders.

8. R&D facilities: Seven new Research Parks will be set up to provide facilities
to startups in the R&D sector

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Benefits under Startup India Initiative

9. No time-consuming compliances: Various compliances have been

simplified for startups to save time and money. Startups shall be allowed to
self-certify compliance (through the Startup mobile app) with 9 labour and 3
environment laws

10. Tax saving for investors: People investing their capital gains in the venture
funds setup by government will get exemption from capital gains. This will
help startups to attract more investors.

11. Choose your investor: After this plan, the startups will have an option to
choose between the VCs, giving them the liberty to choose their investors.

12. Meet other entrepreneurs: Government has proposed to hold 2 startup

fests annually both nationally and internationally to enable the various
stakeholders of a startup to meet. This will provide huge networking
opportunities.

Page 24 16 December 2019

Benefits granted by State Governments:
Benefits under Maharashtra
State Innovate Startup Policy,
2018

Page 26 16 December 2019

Definition of a Startup

Incorporated as either a private limited company, a partnership firm or a limited

liability partnership in Maharashtra, as per the prevalent norms for registration

Operational for not more than seven years from the date of its
incorporation or registration, which is extended to 10 years for units in the
biotechnology and social sectors
Eligibility
Criteria
Reporting an annual turnover of at most INR 25 Crores since its
incorporation or registration

The unit should either strive towards innovation, development or improvement

of products, processes or services; OR be a scalable business model with
strong potential for high employment generation or wealth creation

Notes
► The aforementioned criteria have been defined under the Startup India: Action Plan by the Government of India
► Units 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 Inclusion
► Entities formed by the split-up or reconstruction of an existent business unit are ineligible under the Policy

Page 27 16 December 2019

Incentives offered

Sr.
Particulars Additional details
No.
► 100% reimbursement of Net SGST subject to the condition that
1 SGST reimbursement input credit for the same is not available to the customers
► 100% reimbursement for first 3 years
Stamp Duty and
► 50% reimbursement for subsequent 3 years
2 Registration Fees
reimbursement ► Aggregation of business places supplied by private places
through a common platform may also be permitted
► Assistance of 80% of quality testing costs incurred by startups
3 Quality Testing assistance at BIS-accredited facilities
► 80% rebate in filing costs
4 Patent filing assistance ► Up to INR 2 Lakh for Indian patents and up to INR 10 Lakhs for
international patents
► Self certification for select compliances and norms, with
exemption from inspections for 7 years
► Relaxation from norms under Maharashtra Shops and
5 Other incentives Establishments Act
► Startups in the manufacturing sector are exempt from the “prior
experience and/or turnover” criteria, subject to specified
conditions

Page 28 16 December 2019

Additional non-fiscal benefits and initiatives

Access to Leapfrog Designation of Institution of Incubators

Maharashtra Portal Innovation Clusters and Parks

► The portal will serve ► Mumbai – Fintech ► The State will encourage
as a communication and AVGC the development of
hub and a single incubators through
window clearance Private, Public or
facilitator ► Pune – Automotive Private-Public
► Serves as the and Electronics Partnership (PPP)
nucleus for the methods, in
State’s startup hub ► Nashik – collaboration with the
for enabling effective Healthcare private sector and
knowledge educational and R&D
exchange institutions
► Clearances and ► Aurangabad – ► A multi-facility Startup
approvals can also Agro-process Park has been proposed
be obtained in order to consolidate
efficiently ► Nagpur – Clean incubators, accelerators,
► The portal launch Energy investors, mentors and
date is awaited from other stakeholders in
authorities one location

Page 29 16 December 2019

Additional non-fiscal benefits and initiatives

State-sponsored Funds State Sponsored Development of

Events Human Capital

► Fund-of-funds with an ► Startup Week ► Organization of

initial corpus of INR workshops and
100 Crore and a total programmes in
corpus of INR 500 ► Grand Challenges schools and
Crore universities
► Infrastructure fund for ► B-Plan
incubators, Competitions ► Designation of
accelerators and community builders
other labs and role models
► Encouragement of ► Startup Symposia
CSR funds and an
Alternative ► Get-togethers ► Setup of TEDCs
Investment Market
► The State will support ► Institution of
units in the social EdTech platforms
sector through
crowdfunding
platforms

Page 30 16 December 2019

Maharashtra – Incentives
available in the FinTech
sector

Page 31 16 December 2019

Definition of a FinTech Startup
► As per the Government Resolution (GR) entitled Setting up of Global Fintech Hub and
implementation of Fintech policy,
“FinTech startups are establishments that use technology and innovative business
models in delivering of financial products and services and having annual turnover up
to (INR) 25 Crores”

► Additionally, startups in the FinTech sector must have a registered office in the State of
Maharashtra

► Incentives granted to FinTech startups are over and above the benefits provided under
the Maharashtra Start up and Innovation Policy, 2018

► The Policy also seeks to provide an impetus for the set up of a Global Fintech hub and
Smart Fintech centres

► Units established as part of Smart FinTech centres are entitled to the same incentives
which are granted to IT/ITES units under the Maharashtra IT/ITES Policy, 2015.
Additional information on Smart FinTech centre benefits are provided in the ensuing
slides

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Incentives granted to Fintech
units

Page 33 16 December 2019

Incentives offered
Fintech units
Sr.
Particulars Additional details
No.
► 100% reimbursement up to INR 3 Lakhs per annum for 3 years
Internet and electricity
1 The reimbursement is over and above the incentives provided under the prevailing State
charges reimbursement1 ►
IT/ITES Policy
► 100% reimbursement capped at INR 3 Lakhs per year for 3 years
Reimbursement of ► The assistance is provided for cloud space that is maintained, operated and managed
2 expenditure towards by a cloud storage service provider, subject to additional criteria
hosting infrastructure1 ► The cloud service providers must be empanelled as per the cloud policy issued under
DIT GR dated 19 January 2018 with rates finalized by DIT
1 ► 100% reimbursement capped at INR 4 Lakhs per annum for up to 3 years
3 SGST reimbursement
► Applicable for early stage startups with annual turnover of INR 5 Crores
Reimbursement of ► 50% reimbursement subject to a ceiling of INR 5 Lakhs per unit
4 exhibition/global1event
► Limited to two events
participation fee
► 100% reimbursement for first 3 years
Stamp Duty and
► 50% reimbursement for subsequent 3 years
5 Registration Fees
reimbursement 2 ► Aggregation of business places supplied by private places through a common platform
may also be permitted
2 ► Assistance of 80% of quality testing costs incurred by startups at BIS-accredited
6 Quality Testing assistance facilities

2 ► 80% rebate in filing costs

7 Patent filing assistance
► Up to INR 2 Lakh for Indian patents and up to INR 10 Lakhs for international patents
1. Incentives offered under the Fintech GR
2. Incentives offered under the Maharashtra State Innovative startup Policy 2018, which are granted over and above the benefits under the Fintech GR

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Gujarat Scheme For
Assistance Of Startups /
Innovation, 2015

Page 35 16 December 2019

Gujarat Scheme for Assistance of Startups /
Innovation, 2015
Introduction
► Gujarat Scheme for Assistance for Start ups/Innovation, 2015 – 2020
Policy Title & ► Individuals with an innovate idea or universities, educational institutions,
Eligible Entities incubation centres, R&D institutions, Public Sector Units (PSUs) and
private establishments that support and mentor innovators are eligible

Criteria for ► Incorporated as a Private Limited Company, Partnership or Limited

Recognition as Liability Partnership for not more than 10 years from the date of
Eligible Startup registration/incorporation
Unit [a] ► Maximum annual turnover of INR 100 Crore since incorporation

► The Unit is working towards innovation, development or improvement of

Criteria for products, processes or services [OR]
Recognition as
Eligible Startup ► A scalable business model with a high potential of employment generation
or wealth creation
Unit [a]
► Units formed through a split up or reconstruction of an existing entity are
ineligible

► “Innovation is the process of introducing new or making changes with

Definition of updated technology, large and small, radical and incremental, to products,
Innovative Project processes, and services that results in the introduction of something new
and innovative products”

Page 36 16 December 2019

Gujarat Scheme for Assistance of Startups /
Innovation, 2015
A. Assistance for Innovation
Sr.
Particulars Incentive Amount
No.
1 Sustenance allowance for innovator INR 10,000 per month for 1 year
2 Assistance for mentoring services Up to INR 5 Lakh
Assistance for procuring raw material and other
3 Up to INR 10 Lakh
components pertinent to the innovative process

B. Assistance once idea is conceptualized

Sr.
Particulars Incentive Amount
No.
80% for 5 years up to 70% of eligible
1 Net VAT/SGST Reimbursement
fixed capital investment*
Marketing and Publicity Assistance for introduction of
2 Up to INR 10 Lakh
product to the market
*Computation of Net VAT/SGST will exclude the additional tax payment and reduction in Input tax credit, if any
Additional 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 PSUs

Page 37 16 December 2019

Karnataka Startup Policy,
2015

Page 38 16 December 2019

Karnataka Startup Policy, 2015
Introduction

Policy Title & ► Karnataka Startup Policy, 2015 – 2020

Validity Period ► Valid for 5 years or until the issuance of a replacement Policy

► The Policy is only applicable to technology based, startup units

Eligibility of Units ► Additional criteria pertaining to the unit’s tenure, location, employment
and exit clause have been outlined in the ensuing slide

► Startup Units are eligible for incentives provided under various sector
specific policies issued by the State of Karnataka, which include the State
Benefits Available Industrial Policy and the Karnataka i4 Policy
► Additional benefits are also provided under the startup Policy

► Setting up incubators such as the ► Creation of fund-of-funds for

New Age Incubation Network investments in venture funds
Key Non-Fiscal (NAIN) and Technology Business ► Establishment of Common
Incentives Incubators (TBIs) Instrumentation Facilities (CIFs)
► Early stage funding for promising for public use
ventures

Page 39 16 December 2019

Karnataka Startup Policy, 2015
Definition of a Startup
Eligible Units Ineligible Units

► Nature: The startup unit must be technology ► Units formed by the demerger or reconstitution of a
based, which means it must fulfil either of the business currently in existence
following:
► Create a technology based product or service
► A subsidiary of a firm in the State
► Use technology for enhancing the functionality
or reach of an existing product or service ► except for the subsidiary of a startup that is
qualified as a startup whether by itself or as a
combined entity
► Tenure: The unit should not have been registered
or incorporated for more than four years prior to
submission of any incentive application. The limit ► A merged entity within the State, with the exception
has been extended to 7 years for entities in the of a combined entity that fulfils the aforementioned
Biotechnology sector criteria

► Location: The entity must be registered in ► A franchisee of an existing business in the State
Karnataka under the Karnataka Shops and
Commercial Establishment Act, 1961 ► Units promoted by, sponsored by, or related to an
industrial group in the State whose group turnover
► Employment: At least 50% of the total workforce exceeds INR 300 Crore
(except contract employees) must be hired from
Karnataka ► A holding company should not derive more than
50% of its income from investments and loans
► Exit Clause: the unit becomes ineligible for availing
benefits after earning a revenue of INR 50 Crore

Page 40 16 December 2019

Karnataka Startup Policy, 2015
Incentives

Sr.
Particulars Incentive Amount
No.
Reimbursement of Net VAT/SGST 100% reimbursement capped at
1
(paid by incubated startup company) INR 50 Lakh or upto 3 years
Reimbursement of VAT/SGST
2 (on goods supplied to the incubator 100% reimbursement
or incubatee)
Service Tax reimbursement
(levied to startups incubated in State
3 100% reimbursement
incubators and CIFs; annual
turnover not to exceed INR 50 lakh

Page 41 16 December 2019

Challenges faced by a Startup
Challenges

1. Subsidiary entities may not be able 5. For the success of any new
to obtain startup recognition; business, competent workforce is
2. Innovation is not a measured necessary. But in case of startups,
criteria; skilled workforce is not possible due
3. People generally believe startups to the lack of funds at the initial
are just about thinking about a new phase;
idea or plan. But in reality, 6. The risk of reaching failure is
execution of such plan is more greater in the startups as compared
necessary than just thinking about to other organizations. It is because
it; they tend to take steps quite fast;
4. The view or perspective of the 7. Co-ordination between
government on startup India plan is Departments;
quite short-term in nature. It does 8. Best international practice;
not look at the long-term path of the 9. Attitude towards failure
startups;

Page 43 16 December 2019

Role of a CA
 Role of a CA

Understand
Ensure Understanding and
Ensure completion of analyzing the various
annual compliances incentives offered by the
for the incentives State and Central
Government
availed
Liaise Evaluate
Liaise with the Evaluate the nature and quantum
government authority to of incentives available to the
avail the incentives client

Apply
Advise
Help the client to
Advise to ensure maximum
compile the incentives can be availed
information and
apply

Page 45 16 December 2019

 Questions please?

Page 46 16 December 2019