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Is providing incentives to Indian SMBs and startups a good enough solution

2017-08-05 12:35:49 | Legal Services


The SMBs and startups are however often seen struggling in order to comply with the changing government rules and the regulations. Something which is however as big as GST, liquor ban, demonetization and also VAT can however completely shake-up the small-business owners which is however due to their complexity and also lack of approachability to the government authorities.
The purpose of this article is to make the reader aware of the fact that whether providing the incentives to Indian SMBs and startups a good enough solution or not .


The policy changes such as GST etc are however considered as the crucial industry challenges, and this is especially for the SMBs. If startups or either the SMBs are however failing in order to adapt to these kind of policy changes it’s thus more of a fault at the government’s part which is thus not on the startups part. However, now the focus has thus changed and one only wants to ease the process for the business owners.


The small companies however don’t have the required amount of money in order to facilitate the government policies, there is however the lack of the know-how’s of compliances. India is thus not a one-market. The logistics decisions are thus not always taken on a pure logic.. sometimes they are thus however taken based as to on which state has lower tax, VAT and also the other things. But however now GST will thus treat India as one market.


Prime Minister Narendra Modi has however unveiled a slew of the incentives in order to boost the startups in January as a part of the Startup India Initiative. A corpus which is of Rs. 10,000 Crore corpus which is however for the innovation-driven enterprises, a Rs. 500 crore per year credit guarantee mechanism and also a 3 year break from however paying the income tax on profits were however introduced. Capital gains thus also use tax exemption for the start-ups which was also introduced along with the range of incentives which are thus enumerated below.


Action Plan for the Startups
An action plan in order to help the entrepreneurs so that they thus play a transformative role in the India’s development was however unveiled. Businesses till date however were required to comply with the various central and the state laws which were pertaining to the labor and environment. Non-compliance with these kind of laws however would result in the severe penalties and fines. Also , In order to do away with these kind of complex procedures, startups would also thus now be able in order to self-certify their compliance requirements with the nine labor and also environmental laws without however being inspected periodically as is thus the norm currently and also receive faster approvals. Compliance would thus also be checked only if there is tus a written complaint against the startup.
Startups will thus also obtain an 80 percent rebate in the patent registration fees as it is compared to the other companies in order to protect the intellectual property. Startups are also considered as high risk ventures and thus about 90 percent of the startups fail currently.


Tax Exemption
Also , ‘Entrepreneur-friendly taxation regime’ would however be introduced for the startups in order to ease the tax burden which is on them. Tax exemption which is under the three different schemes have however been provided as part of the action plan. According to the Budget 2016, it has however been proposed in order to insert a new Section 54EE in order to provide an exemption from the capital gains tax if the long term capital gains proceeds are however invested by an assessee in the units of specified funds which is thus subject to the condition that the amount however remains invested for the three years failing which the exemption shall be however be withdrawn. The investment which is in the units of the specified fund shall however be allowed up to Rs. 50 lakh. It is thus also proposed in order to amend section 54GB however so as to provide thus relief to an individual who is willing in order to setup a company by however selling a residential property in order to invest the shares of such kind of company. The amended section would thus also provide that long term capital gains which are however arising on an account of the transfer of a residential property shall thus also is not required to be charged to tax if such kind of capital gains are however invested in the subscription of kind of shares of a company which however qualifies to be an eligible start-up.
Other Incentives
Other incentives thus also include a new scheme for the intellectual property rights for the protection and also faster registration of patents. The government thus also intends in order to set up the facilitation centres for the provision of the free legal advice and also other support to the small business in order to help them with the compliance requirements. Procurement norms are thus also proposed to be relaxed in order to ensure that the startups are however able to participate and also compete with the established businesses. Policies in order to enable the women entrepreneurs, sector specific incubators and also the establishment of the bio clusters for the biotech sector are thus also some of the other highlights. Investments which are however by the incubators which is above the fair market value would thus be exempted in the line which is with the current exemption which is however available to the venture capital funds in order to invest in startups above the FMV. Funding support which are however upto Rs. 10 crore would thus be provided in order to set up the new incubators while the individual states and the private sector would however provide 40 percent and 20 percent respectively.


We thus definitely are required to encourage the smaller business but we however also need to re-think as to how we go about doing this. The current regime is thus working in parts, but it’s however still not up to the mark.




This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for Section 8 company registration, Nidhi company registration, IEC registration.


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