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DPIIT recommends measures to ease fundraising for start-ups: Report

The Department for Promotion of Industry and Internal Trade (DPIIT) has suggested exempting proceeds on sale of residential properties from capital tax gains if they are used to fund a start-up, PTI reported. This has been done keeping in mind that upcoming entrepreneurs often have to sell their residential properties to raise capital for their businesses. To make this possible, DPIIT has suggested changes to Section 54B of the Income Tax Act.

DPIIT has also reportedly recommended reducing the shareholding requirements of start-up founders from to 20%, from the current requirement of 50%, along with reducing the mandatory holding period from 5 years to 3 years, the report said.

These suggestions are a part of DPIIT’s “Startup India Vision 2024”. Amending Section 79 of the Income Tax Act has also been proposed to reduce promoters’ shareholding requirements to carry forward losses to 26%, from the current 100% requirement, according to the PTI report.

Other suggestions include setting up  50,000 new start-ups, and 500 new incubators and accelerators in the country by 2024. The vision document further proposes 100 innovation zones in urban local bodies, deployment of entire corpus of Rs 10,000 crore Fund of Funds, and expanding CSR (corporate social responsibility) funding to incubators.

Start-ups in India: A snapshot

How has the government aided start-ups so far? Start-up India was launched in January 2016 to help foster start-ups in the country. On November 27, 2019, Commerce Minister Piyush Goyal informed Lok Sabha that the initiative has been launched in all states and UTs of India. He said that start-ups recognised by DPIIT are eligible for following incentives:

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  • Self-Certification under 6 labour laws and 3 environmental laws
  • Relaxations in public procurement norms
  • Faster exit under the Bankruptcy Code
  • Rebates on patent & trademark filing fees, support from facilitators and expedited examination of Patent application
  • Income Tax exemption under Section 80 IAC of Income Tax Act
  • Exemption from Income Tax on investments received above fair market value
  • Funding support under the Fund of Funds for startups
  • Guidance and facilitation support from Startup India Hub

In August, Finance Minister Nirmala Sitharaman had said that Angel tax would not be levied for start-ups registered with DPIIT. Prior to this announcement, startups were subject to a 30% Angel tax.

Number of start-ups in India: In another response, Goyal informed the lower house that as of November 21, there are 24,940 in India that are recognised by the DPIIT. Of these, the maximum number of start-ups are from Maharashtra (4,729), followed by Bengaluru (3,612). Delhi has 3,219 startups while Uttar Pradesh and Haryana have 1,991 and 1,403 start-ups, respectively.

Which sectors do these start-ups work in? Goyal also said that 3,443 startups recognised by DPIIT work in the IT Services sector, followed by the healthcare sector which has 2,063 startups. In the education sector, there are 1,766 startups, and the food and beverage industry and professional and commercial services industry has 1,009 and 998 startups, respectively.

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