After Finance Minister Nirmala Sitharaman, in her budget speech on February 1, proposed to provide a seed fund to early stage start-ups, news agency PTI reported that the Department for Promotion of Industry and Internal Trade (DPIIT) is working on guidelines for creating a National Seed Fund Policy. The department will reportedly move a Cabinet note, set up a fund and devise guidelines to that end.
The department has held discussions with states and other central government departments having their own seed funds, such as the Biotechnology Industry Research Assistance Council, the report said, and added that start-ups have demanded the formulation of a national seed fund scheme, time and again.
In it’s 2019 election manifesto, the Bharatiya Janata Party (BJP) had said it would create a seed startup fund of Rs 20,000 crore to back early-stage companies. The DPIIT was also reportedly mulling easing fundraising measures for start-ups, including exempting proceeds on sale of residential properties from capital tax gains if they were used to fund a start-up, as part of its “Startup India Vision 2024”.
Other announcements for start-ups and MSMEs in the Union Budget 2020
Start-ups can use ESOPs to retain employees, which are currently taxed as perquisites.
- Defer tax payment by 5 years or till the employee leave the company or they sell shares, whichever is the earliest.
- Extend period of claim of deduction for a start-up from 7 to 10 years.
- Increase turnover limit for profit exemption from Rs 25 crore to Rs 100 crore.
For MSMEs, audit threshold will be increased from Rs 1 crore to Rs 5 crore. This shall apply only to MSMEs with less than 5% cash transactions in a move to encourage digitisation.
- App-based invoice financing loans product will be launched to resolve issues of delayed payments and consequential cash flows mismatches for MSMEs.
A digital platform to capture IPR, complexity and innovation in start-up economy, to be protected through knowledge centres. Apart from that, an Institute of Excellence would be established that would work on the complexity and innovation in the field of Intellectual Property.
Start-ups in India: A snapshot
On November 27, 2019, Commerce Minister Piyush Goyal had informed Lok Sabha that the Start-up India initiative was launched in all states and UTs of India. He said that start-ups recognised by DPIIT are eligible for the following incentives:
- 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
Number of start-ups in India: In another response, Goyal had 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 had 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.