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Start-up action plan: 3-yr tax holiday, Rs 10,000 cr fund

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New Delhi: Prime Minister Narendra Modi today unveiled a slew of incentives to boost start-up businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000 crore corpus to fund them.

He also announced a self-certification scheme in respect of nine labour and environment laws and said there will be no inspection during the first three years of launch of the venture.

Also, a liberalised patent regime is being brought to help start-up businesses register patents, for which the fee will be slashed by 80 per cent.

Addressing the first conference of start-up entrepreneurs, Modi announced an action plan to boost such ventures which are seen as key to employment generation and wealth creation.

India, which has the third-largest number of start-ups globally, will also support the ventures by removing the criteria of experience and turnover for bagging government procurement contracts.

Modi said profits earned by start-ups will be exempt from payment of income tax during the first three years of business. To boost financing, a 20 per cent tax on capital gains made on investments by entrepreneurs after selling own assets as well as government-recognised venture capitalists will also be exempt.

He further said an unencumbered easy exit option will be provided under the bankruptcy Act so that start-ups can exit within 90 days. Unveiling the 19-point start-up action plan, Modi said capital gains tax exemption will put start-ups at par with MSMEs.

Tax exemption will be given on investments above the fair market value. Under the Income Tax Act, if a start-up receives equity funding which exceeds the firm’s fair market value, then such excess consideration is taxable in the hands of recipients.

He said the objective of compliance regime based on self certification is to reduce the regulatory burden on start-ups. This self-certification will apply to laws like payment of gratuity, contract labour, employees provident fund, water and air pollution acts.

A start-up India hub will be created as a single point of contact for the entire start-up ecosystem to enable knowledge exchange and access to funding.

The government’s ‘Start up India’ programme intends to build a strong ecosystem for nurturing innovation with a view to driving sustainable economic growth and generating large-scale employment opportunity.

Modi said a mobile app and portal will be rolled out for interacting with the government and regulatory institutions.

The government is also working on a legal support for fast-tracking patent examination at lower costs. It will promote awareness and adoption of Intellectual Property Rights (IPRs) by start-ups and help them protect and commercialise IPRs.

The relaxed norms for public procurement will give start-ups an equal platform vis-a-vis experienced entrepreneurs or companies.

In order to provide funding support to start-ups, the government will set up a fund with an initial corpus of Rs 2,500 crore and a total corpus of Rs 10,000 crore over four years.
The fund would be managed by private professionals drawn from the industry while LIC will be a co-investor in the fund.

The credit guarantee fund for start-ups would help flow of venture debt from the banking system to start-ups by standing guarantee against risks. A National Credit Guarantee Trust Company is being envisaged with a budgetary allocation of Rs 500 crore per year for the next four years.

Currently, investments by venture capital funds in start-ups are exempt from this law. Now, the same is being extended to investments made by incubators in start-ups.

Other initiatives under the action plan include organising start-up fests for showcasing innovation and providing a collaboration platform, harnessing private sector expertise for incubator set-up and building innovation centres at national institutes.

It also provides setting up seven new research parks, promoting start-ups in the biotechnology sector through seed and equity funding, launching of innovation-focused programme for students and an annual incubator award.

Modi said the action plan also provides for faster exit of start-ups in the case of winding up of business. A insolvency and bankruptcy Bill has been pending approval of Parliament and “you know why it is stuck there”, he said, in an apparent reference to the Opposition stalling its passage.

He called upon young entrepreneurs to take to Twitter and Facebook to tell the world why the bankruptcy law was stalled. “We are starting the Atal Innovation Mission to give an impetus to innovation and encourage talent among our people,” Modi said, adding that India’s future lies in innovation and creativity.

Emphasising on potential of the country’s youth, he said India has “a million problems, but at the same time we have over a billion minds”.

Technology, he said, is impacting the health sector, but the issue is how to make it affordable. Also, quality of education is important and it’s very crucial to take this quality education to the poorest of the poor.

Modi said a start-up does not mean a billion dollar company where thousands of people work, it is about employing even 5 people and developing India. He asked the youth to be “job creators” and not “job seekers”. “When we say Make in India, we also say Make for India. India is a great market,” the Prime Minister added.

Stating that solution to all problems have become an App, Modi said he has himself benefited greatly from this and now also has the ‘Narendra Modi App’.

“Success of start-ups is not only about enterprise, it is about risk taking and adventure also… There is an energy from within and there are dreams that you have dedicated yourself to,” he said.

On governance, the Prime Minister said the government is in office so that people can tell what “we should not do… For 70 years, we did a lot and where have we reached? If we decide not to do various things, then we can go places”.

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