The Indian Government has been rolling up several initiatives for kick-starting the Startups Industry in India. Beginning with the “Make In India” campaign, followed up by the ‘Startup Initiative’ and now the most promising ‘Annual Budget’ announcements that will take place shortly. Indian entrepreneurs have several reasons to cheer.
Here is a rundown of 5 laws that are sure to help the startup industry.
GST Act Rollout
Goods and Services Tax regime intends to bring the whole of India under a single tax regime. This will turn out to be a boon for the E-commerce industry. Right now e-commerce in India is plagued by the different laws and tariffs applicable in different states. To top it all there are more roadblocks in the name of Octroi or Entry Taxes which are charged by different local bodies In the Indian states. The net result is chaos and confusion.
Complying with the Excise Duty rules by way of payment of taxes, maintaining registers and records, tax receipts, filing returns and then dealing with the inquiries from the government, all these were tasks which only dedicated personnel could handle. To top it, there are many laws which are more intricate in nature like Value Added Tax etc. Dealing with these can make the entrepreneurs spare the major part of their time and effort into these rather than taking care of their own business.
The GST aims at removing all these obstacles in a single swoop. The Sales taxes have been a bane on the functioning of e-commerce companies as they operate from one state and cater to the supplies to customers in several different states. Moreover their option to pay at the time of delivery was also posing a lot of legal heartburn. Now all these troubles will become a thing of the past.
Labor Law Compliance Relaxations
India has several Laws on Labor compliance, each with a plethora of paperwork like Registration under the Acts, Regular Monthly Challans for payments, Monthly Reports and Returns, Maintaining appropriate Register for Inspections etc.
Now the government has simplified all these by allowing the Startups to self-certify compliance through the Startup mobile app, with 9 labor and environment laws:
- The Building and Other Constructions Workers’ (Regulation of Employment & Conditions of Service) Act, 1996
- The Inter-State Migrant Workmen (Regulation of Employment & Conditions of Service) Act, 1979
- The Payment of Gratuity Act, 1972
- The Contract Labour (Regulation and Abolition) Act, 1970
- The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
- The Employees’ State Insurance Act, 1948
- The Water (Prevention & Control of Pollution) Act, 1974
- The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003
- The Air (Prevention & Control of Pollution) Act, 1981
What is more is that this self-certification can be done through a mobile app and this takes just a few minutes.
Apart from this, there will be no inspection by labor authorities. Thus the fear and inconvenience related to implementation of Labor Laws have been eliminated altogether. Moreover, several relaxations have been offered in the Factories Act 1948 in terms of Working Hours and Overtime, as well as facilitating women to work without fear and with dignity in startup companies.
Benefits under the Income Tax Act, 1961:
Several benefits to startups have already been announced under the Income Tax act to give a good break in the startup industry. A few of them are mentioned below:
Tax Exemption to Startups for 3 years
The profits that a startup males in the initial stages are generally plowed back into the capital or used as operating expenses for the next year, as startups generally scale-up their operations in the initial years to grow. Under the Finance Act, 2016 Section 80- IAC a provision has been made for Tax Incentives to Startups for income tax exemption for 3 years in a block of 5 years, if they are incorporated between 1st April 2016 and 31st March 2019.
Exemption on Capital Gains
Capital gains are those incomes that come from the sale of capital assets of a startup. Exemption has been given in long term capital gains during the year, if such funds are invested on the Fund of Funds recognized by the Government, and also on investment in eligible start-up.
Tax Exemption on Investments above Fair Market Value:
Earlier, if a startup company which is unlisted, issued shares at a premium, the difference between Fair Market Value (FMV) and the issue price is added as income of the unlisted company, and is taxable in the hands of recipient as Income from Other Sources. Now there is tax exemption on investments above Fair Market Value for investments made in Startups.
Benefits under the Intellectual Property Right (IPR) Laws:
The Indian Government would bear the entire facilitation cost on behalf of Startups and also provide rebates in the statutory fee for filing of application. The facilitators shall provide assistance for startups in the filing and disposal of patent applications related to patents, trademarks and design under relevant Acts. Moreover, startups have been provided an 80% rebate in filing patents (Patent Amendment Rules 2016 May 2016). For this purpose, a panel of facilitators will be impaneled to assist in filing of IP applications. The Government shall bear the entire fees of the facilitators. The Start-up shall bear only the cost of statutory fees.
Government Procurement Initiatives under MSME Act
Earlier, to participate in any tender by the government and Public Sector Undertakings of the government, the tender norms required prior experience or certain quantum of turnover in previous years. This prevented many startups from participating in the bidding process. The public procurement policy now allows the central government and PSUs to procure at least 20% of their purchases from startups while exempting all startups from prior experience criteria in public procurement
Conclusion:
The Indian Government is making an all out effort to encourage startups in the country, which can rise to global levels. In this endeavor lots of laws are being modified to suit the startup scenario. Apart from those mentioned, there are several laws in the pipeline, which will help startups. One of them also relates to exit of startups. The Insolvency and Bankruptcy Bill 2015 is to be amended to allow winding up a startup within 90 days from making of an application. Amendment in the Companies Act 2013 will also be made to ensure better startup ecosystem and tackle the registrations in a hassle-free manner and enhancing the ease of doing business.
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