Project Report

On
Incentives under “Start-up India” vis-à-vis
Income-tax Act, 1961

Prepared By: - Team E (Excellence)

- Hitesh Solanki
- Jeet Vora
- Lokesh Mehta
- Maulik Joshi
- Rukhsar Ansari
- Vivek Kanakhara

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 Index
1. Start-up India – Introduction ................................................................................................................................ 3
2. Salient Features of Start-up India ......................................................................................................................... 4
3. Differences between Start-up India, Make in India and Digital India .................................................................... 5
4. Startups – Meaning & Progress............................................................................................................................ 6
5. Eligibility for Startups ......................................................................................................................................... 7
6. Incentives / Benefits under Start-up India vis-à-vis Income-tax Act, 1961 ............................................................ 9
• Fund of Rs. 10,000 crores for startups:- ...................................................................................................... 10
• Startup India Hub:-..................................................................................................................................... 10
• Mobile App and Portal for startup registration in one day:- ......................................................................... 11
• Relaxed Norms of Public Procurement for Startups:- .................................................................................. 13
• Compliance Regime based on Self-Certification:-....................................................................................... 14
• 100% Tax Exemption in respect of Profit:- ................................................................................................. 15
• Exemption from Capital Gain:- .................................................................................................................. 17
• Tax exemption on investments above Fair Market Value:- .......................................................................... 18
• A credit guarantee fund for startups:-.......................................................................................................... 19
• Atal Innovation Mission to encourage entrepreneurship and innovation:-.................................................... 19
• Faster Exit for Startups:- ............................................................................................................................ 19
• Innovation focused programs for students:- ................................................................................................ 20
7. Side-effects / Limitations of Start-up India ........................................................................................................ 21
8. Effects of Start-up India on Indian Economy ..................................................................................................... 22
9. PESTLE Analysis of Start-up India Action Plan ................................................................................................ 23
10. Role of Chartered Accountant in Start-up India Initiative ................................................................................... 25
11. Conclusion ........................................................................................................................................................ 33

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 Start-up India – Introduction

• Honorable Prime Minister Shri Narendra Modi launched Startup

India Initiative on 69th Independence Day i.e. 15th August, 2015 at the
Red Fort.
• Addressing the Nation on the 69th Independence Day, he said, "We are
looking at systems for enabling start-ups. We want to enable start-ups
to make India No. 1 in this field…Start-up India; Stand up India."
• He highlighted the group of 125 crore Indians, as ‘Team India’, to
make India a developed nation by year 2022.
• Start-up India is a flagship initiative of the Government of India,
intended to build a strong system for promotion of innovation and
startups in the country that will drive sustainable economic growth and
generate large scale employment opportunities.
• The Government through this initiative aims to empower Startups to
grow through innovation and design.

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 Salient Features of Start-up India
• To encourage entrepreneurship among the youth of India. Each of
the 1.25 lakh Bank branches should encourage at least one Dalit or
Tribal Entrepreneur and at least one Woman Entrepreneur.
• In addition to existing systems to facilitate Start-ups, loans would also
be given to help people.
• Give a new dimension to entrepreneurship and help to set up a
network of startups in the Country.
• Promised to eliminate the current practice of interview-based
selections for low-skilled Government jobs. The practice of interviews
for recruitment at relatively junior levels and departments concerned is
to be eliminated at the earliest and promote merit by recruiting only
through transparent, online processes.
• As part of this initiative, package of incentives will be given to
manufacturing units for generating jobs.
• India has declared 2010-20 as the Decade of Innovation. The
Government has stressed the need to vocalize a policy to synergies
science, technology and innovation and has also established the
National Innovation Council (NIC).
• India is the 3rd largest ecosystem in the world for startups, after the
US and England with a rapidly evolving ecosystem, driven by an
extremely young, diverse and inclusive entrepreneurial landscape.
• It is expected that if the current trend continues, within 1-2 years India
will reach the 2nd spot after the US and will be among the top Asian
Start-Up ecosystems, along with China and South East Countries.

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 • According to the NASSCOM, around 11,500 Start-ups will come up
in the Country by year 2020, creating over 2.5 lakh jobs, compared to
the current 75,000 jobs.

Differences between Start-up India, Make in

India and Digital India
START-UP INDIA MAKE IN INDIA DIGITAL INDIA
1 It is an initiative based on It is an initiative undertaken Initiative to assure that
an action plan aimed at by Government of India to government services are made
providing bank financing. promote investment in available to citizens
manufacturing sector. electronically

2 Launched on 15 August, Launched on 25 September, Launched on 01 July, 2015

2015 2014

3 It is a campaign to It is a campaign to This campaign is achieved by

encourage encourage manufacture of improving online infrastructure
entrepreneurship and goods in India. and by increasing internet
employment. connectivity.

4 It will strengthen the It will strengthen India’s It aims to offer a one-stop shop
entrepreneurship among manufacturing sector and for government services would
SCs/STs and women build industrial base nation- use the mobile phone as the
community. wide. backbone of its delivery
mechanism.

5 Mission: Stand India Mission: To turn India into Mission: To turn India into a
across the world as start- a global manufacturing hub. electronic manufacturing hub.
up hub.

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 Startups – Meaning & Progress

• Startups are new businesses. The kinds of new businesses that offer
opportunity for growth and employment generation are generally
considered to be those that are innovating.

• For startups, cash flow and creating capacity to scale and finding the
right people are major challenges. India has witnessed unparalleled
growth in startups in the last five years, following the success stories
of technology based companies like MakeMyTrip.com and
Naukri.com a decade ago.

• During the last financial year 98,473 new companies were

incorporated in India. India has a very large number of micro and
small enterprises across various sectors. However, existing surveys
and studies on startups focus on those that use technology. The focus
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 on startups in India has, therefore, come to primarily center on
innovative, small companies leveraging technology to solve consumer
problems.

• According to a recent study by NASSCOM, India has around 4400

startups that employ close to 85,000 employees. Total funding till
2015 in startups is estimated to be $6.5 billion. This excludes funding
in startups incorporated before 2010, such as Flipkart, Quickr, Practo,
Zomato, and Inmobi, which, if taken in account, will further inflate the
investment figure. The ecosystem for both technology and traditional
startups has been expanding at a quick pace.

Eligibility for Startups

For an entity to be recognized as a Startup, it must satisfy the following
conditions:
A. It must be an entity registered/incorporated as a Private Limited
Company under the Companies Act, 2013; or Registered Partnership
firm under the Indian Partnership Act, 1932; or Limited Liability
Partnership under the Limited Liability Partnership Act, 2008. It
means such exemption is not available to Public Limited Company,
Individual, HUF, Trust, AOP or BOI.

B. Five years must not have elapsed from the date of incorporation /
registration.

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 C. Annual turnover (as defined in the Companies Act, 2013) must not
exceed Rs. 25 crores in any preceding financial year.
D. Startup must be working towards innovation, development,
deployment or commercialization of new products, processes or
services driven by technology or intellectual property.
• The Startup must aim to develop and commercialize:
o A new product or service or process; or
o A significantly improved existing product or service or process
that will create or add value for customers or workflow.
• The Startup must not merely be engaged in:
o Developing products or services or processes which do not have
potential for commercialization; or
o Undifferentiated products or services or processes; or
o Products or services or processes with no or limited incremental
value for customers or workflow.

E. The Startup has obtained certification from the Inter-Ministerial

Board, setup by DIPP to validate the innovative nature of the business,
and;

F. Any one of the following conditions:

• Be supported by a recommendation (with regard to innovative
nature of business), in a format specified by DIPP, from an
incubator established in a post-graduate college in India; or
• Be supported by an incubator which is funded (in relation to the
project) from GOI as part of any specified scheme to promote
innovation; or

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 • Be supported by a recommendation (with regard to innovative
nature of business), in a format specified by DIPP, from an
incubator recognized by GOI; or
• Be funded by an Incubation Fund/Angel Fund/Private Equity
Fund/Accelerator/Angel Network duly registered with SEBI that
endorses innovative nature of the business; or
• Be funded by the Government of India as part of any specified
scheme to promote innovation; or
• Has a patent granted by the Indian Patent and Trademark Office in
areas affiliated with the nature of business being promoted.

Incentives / Benefits under Start-up India

vis-à-vis Income-tax Act, 1961

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 • Fund of Rs. 10,000 crores for startups:-

Objective-
To create an infrastructure for the entire Startup ecosystem and enable
knowledge exchange.

Details-
The government will set up a fund with an initial corpus of Rs. 2,500
crores and a total corpus of Rs. 10,000 crores over a period of four years,
which will be managed by a board with private professionals drawn from
industry bodies, academia, and successful startups. The fund will
participate in the capital of SEBI registered venture funds, and invest in
sectors such as manufacturing, agriculture, health, and education.

• Startup India Hub:-

Objective-
To create a single point of contact for the entire Startup ecosystem and
enable knowledge exchange and access to funding.

Details-
Young Indians today have the conviction to venture out on their own and a
conductive ecosystem lets them watch their ideas come to life. In today’s
environment we have more startups and entrepreneurs than ever before
and the movement is at the point of a revolution. However, many Startups
do not reach their full potential due to limited guidance and access.
The Government of India has taken various measures to improve the ease
of doing business and is also building an exciting and enabling
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environment for these Startups, with the launch of the “Start-up India”
movement.
The “Startup India Hub” will be a key stakeholder in this vibrant
ecosystem and will:
o Work in a hub and spoke model and collaborate with Central & State
governments, Indian and foreign VCs, angel networks, banks,
incubators, legal partners, consultants, universities and R&D
institutions.
o Assist Startups through their lifecycle with specific focus on
important aspects like obtaining financing, feasibility testing,
business structuring advisory and enhancement of marketing skills,
technology commercialization and management evaluation.
o Organize mentorship programs in collaboration with government
organizations, incubation centers, educational institutions and private
organizations who aspire to foster innovation.
To all young Indians who have the courage to enter an environment of
risk, the Start-up India Hub will be their friend, mentor and guide to hold
their hand and walk with them through this journey.

• Mobile App and Portal for startup registration in one day:-

Objective-
To serve as the single platform for Startups for interacting with
Government and Regulatory Institutions for all business needs and
information exchange among various stakeholders.

Details-

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In order to commence operations, Startups require registration with
relevant regulatory authorities.
Delays or lack of clarity in registration process may lead to delays in
establishment and operations of Startups, thereby reducing the ability of
the business to get bank loans, employ workers and generate incomes.
Enabling registration process in an easy and timely manner can reduce this
burden significantly.
Besides, Startups often suffer from the uncertainty regarding the exact
regulatory requirements to set up its operations. In order to ensure that
such information is readily available, it is intended that a checklist of
required licenses covering labor licensing, environmental clearances etc.
be made available. Currently, the Startup ecosystem in India also lacks
formal platform(s) for Startups to connect and collaborate with other
ecosystem partners.
Towards these efforts, the Government shall introduce a Mobile App to
provide on-the-go accessibility for:
o Registering Startups with relevant agencies of the Government. A
simple form shall be made available for the same. The Mobile App
shall have backend integration with Ministry of Corporate Affairs
and Registrar of Firms for seamless information exchange and
processing of the registration application
o Tracking the status of the registration application and anytime
downloading of the registration certificate. A digital version of the
final registration certificate shall be made available for downloading
through the Mobile App

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 o Filing for compliances and obtaining information on various
clearances/ approvals/ registrations required
o Collaborating with various Startup ecosystem partners. The App shall
provide a collaborative platform with a national network of
stakeholders (including venture funds, incubators, academia, mentors
etc.) of the Startup ecosystem to have discussions towards enhancing
and bolstering the ecosystem
o Applying for various schemes being undertaken under the Startup
India Action Plan the App shall be made available from April 01,
2016 on all leading mobile/ smart devices’ platforms. The Startup
portal shall have similar functionalities (being offered through the
mobile app) using a richer web-based User Interface.

• Relaxed Norms of Public Procurement for Startups:-

Objective-
To provide an equal platform to Startups (in the manufacturing sector) vis-
à-vis the experienced entrepreneurs / companies in public procurement.

Details-
Typically, whenever a tender is floated by a Government entity or by a
PSU, very often the eligibility condition specifies either “prior experience”
or “prior turnover”. Such a stipulation prohibits / impedes Startups from
participating in such tenders.
At present, effective April 1, 2015 Central Government, State Government
and PSUs have to mandatorily procure at least 20% from the Micro Small
and Medium Enterprise (MSME).

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In order to promote Startups, Government shall exempt Startups (in the
manufacturing sector) from the criteria of “prior experience/ turnover”
without any relaxation in quality standards or technical parameters. The
Startups will also have to demonstrate requisite capability to execute the
project as per the requirements and should have their own manufacturing
facility in India.

• Compliance Regime based on Self-Certification:-

Objective-
To reduce the regulatory burden on Startups thereby allowing them to
focus on their core business and keep compliance cost low.

Details-
Regulatory formalities requiring compliance with various labor and
environment laws are time consuming and difficult in nature. Often, new
and small firms are unaware of nuances of the issues and can be subjected
to intrusive action by regulatory agencies.
In order to make compliance for Startups friendly and flexible,
simplifications are required in the regulatory regime.
Accordingly, the process of conducting inspections shall be made more
meaningful and simple.
Startups shall be allowed to self-certify compliance (through the Startup
mobile app) with 9 labor and environment laws (refer below).
In case of the labor laws, no inspections will be conducted for a period of
3 years. Startups may be inspected on receipt of credible and verifiable

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complaint of violation, filed in writing and approved by at least one level
senior to the inspecting officer.
In case of environment laws, Startups which fall under the ‘white
category’ (as defined by the Central Pollution Control Board (CPCB))
would be able to self-certify compliance and only random checks would
be carried out in such cases.
o List of Labor 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 Labor (Regulation and Abolition) Act, 1970,
 The Employees’ Provident Funds and Miscellaneous Provisions
Act, 1952,
 The Employees’ State Insurance Act, 1948.
o List of Environment Laws:
 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.

• 100% Tax Exemption in respect of Profit:-

Objective-
To eliminate the burden of the tax payment for Startups.

Details-
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Deduction under Section 80-IAC of the Income-Tax Act, 1961 (Newly
added in Budget, 2016):
o Where the gross total income of an Assessee, being an eligible start-
up, includes any profits and gains derived from eligible business,
there shall, in accordance with and subject to the provisions of this
section, be allowed, in computing the total income of the Assessee, a
deduction of an amount equal to one hundred per cent of the profits
and gains derived from such business for three consecutive
assessment years.

o The deduction specified above may, at the option of the Assessee, be

claimed by him for any three consecutive assessment years out of
five years beginning from the year in which the eligible start-up is
incorporated.

o This section applies to a start-up which fulfils the following

conditions, namely,
 It is not formed by splitting up, or the reconstruction, of a business
already in existence; Provided that this condition shall not apply in
respect of a start-up which is formed as a result of the re-
establishment, reconstruction or revival by the Assessee of the
business of any such undertaking as referred to in section 33B, in
the circumstances and within the period specified in that section;
 It is not formed by the transfer to a new business of machinery or
plant previously used for any purpose.
 For the purposes of this section,
 “Eligible business” means a business which involves innovation,
development, deployment or commercialization of new products,
processes or services driven by technology or intellectual
property;
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  “Eligible start-up” means a company engaged in eligible
business which fulfils the following conditions, namely:—
 It is incorporated on or after the 1st day of April, 2016 but
before the 1st day of April, 2019;
 The total turnover of its business does not exceed twenty-five
crore rupees in any of the previous years beginning on or after
the 1st day of April, 2016 and ending on the 31st day of
March, 2021; and
 It holds a certificate of eligible business from the Inter-
Ministerial Board of Certification as notified in the Official
Gazette by the Central Government.
• Exemption from Capital Gain:-

Objective-
To eliminate the burden of the tax payment for Startups.

Details-
Exemption from capital gains tax on personal residential property sold to
invest in start-up (Section 54GB) (Amended in Budget, 2016):
o The existing provisions of section 54GB provide that capital gains
arising on account of transfer of a residential property shall not be
charged to tax if such capital gains is invested in subscription of
shares of a company which qualifies to be a small or medium
enterprise under the Micro, Small and Medium Enterprises Act, 2006
subject to other conditions specified there in.
o It is proposed to amend section 54GB so as to provide that capital
gains arising on account of transfer of a residential property shall not
be charged to tax if such capital gains is invested in subscription of

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 shares of a company which qualifies to be an eligible start-up subject
to other specified conditions.
o The existing provision of section 54GB requires that the company
should invest the proceeds in the purchase of new asset being new
plant and machinery but does not include inter alia, computers or
computer software.
o It is proposed to amend section 54GB so as to provide that the
expression “new asset” includes computers or computer software in
case of technology driven start-ups so certified by the Inter-
Ministerial Board of Certification notified by the Central Government
in the Official Gazette.
o These amendments will take effect from 1st April, 2017 and will,
accordingly, apply in relation to the assessment year 2017-18 and
subsequent assessment years.

• Tax exemption on investments above Fair Market Value:-

Objective-
To encourage seed – capital investment in startups.

Details-
Under The Income Tax Act, 1961, where a startup receives any
consideration for issue of shares which exceeds the Fair Market Value
(FMV) of such shares, such excess consideration is taxable in the hands of
recipient as Income from Other Sources. In the context of startups, where
the idea is at a conceptualization or development stage, it is often difficult
to determine the FMV of such shares. In majority of the cases, FMV is
also significantly lower than the value at which the capital investment is
made. This results into the tax being levied under section 56 (2) (viib) of
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The Income Tax Act, 1961. Currently, investment by venture capital funds
in startups is exempted from operations of this provision. The same shall
be extended to investment made by incubators in the startups.

• A credit guarantee fund for startups:-

A credit guarantee mechanism will help startups raise debt funding
through the formal banking system through National Credit Guarantee
Trust Company (NCGTC) & SIDBI, which has an annual corpus of Rs.
500 crores for the next four years.

• Atal Innovation Mission to encourage entrepreneurship and

innovation:-
The Atal Innovation Mission will establish sector specific incubators and
500 'Tinkering Labs' to promote entrepreneurship, provide pre-incubation
training and a seed fund for high-growth startups. Three innovation
awards will be given per state and union territory, along with three
national awards, as well as a Grand Innovation Challenge Award for
finding ultra-low cost solutions for India.

• Faster Exit for Startups:-

Objective-
To make it easier for Startups to wound up its operations.

Details-
Given the innovative nature of Startups, a significant percentage fail to
succeed.

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In the event of a business failure, it is critical to reallocate capital and
resources to more productive avenues and accordingly a swift and simple
process has been proposed for Startups to wind-up operations.
This will promote entrepreneurs to experiment with new and innovative
ideas, without having the fear of facing a complex and long-drawn exit
process where their capital remain interminably stuck.
The Insolvency and Bankruptcy Bill 2015 (“IBB”), tabled in the Lok-
Sabha in December 2015 has provisions for the fast track and / or
voluntary closure of businesses.
In terms of the IBB, Startups with simple debt structures or those meeting
such criteria as may be specified may be wound up within a period of 90
days from making of an application for winding up on a fast track basis.
In such instances, an insolvency professional shall be appointed for the
Startup, who shall be in charge of the company (the promoters and
management shall no longer run the company) for liquidating its assets
and paying its creditors within six months of such appointment.
On appointment of the insolvency professional, the liquidator shall be
responsible for the swift closure of the business, sale of assets and
repayment of creditors in accordance with the distribution waterfall set out
in the IBB. This process will respect the concept of limited liability.

• Innovation focused programs for students:-

An innovation core program targeted at school kids aims to source 10 lakh
innovations from five lakh schools, out of which the best 100 would be
shortlisted and showcased at an Annual Festival of Innovations, to be held
in Rashtrapati Bhavan. A Grand Challenge program called NIDHI
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(National Initiative for Developing and Harnessing Innovations) shall be
instituted through Innovation and Entrepreneurship Development Centers
(IEDCs) to support and award INR 10 lakh to 20 lakh student innovations.
Uchhattar Avishkar Yojana, a joint MHRD-DST scheme has earmarked
Rs. 250 crores annually to foster "very high quality" research amongst IIT
students.

Side-effects / Limitations of Start-up India

• Takeovers:-
There are no safeguards to ensure that Indian start-ups are not
overtaken by foreign companies.
• Tax status:-
Tax status is not predictive in India.
• Lack of bankruptcy laws:-
Lack of laws related to bankruptcy allows easy exist in case of failure.
• Narrow definition:-
Limited definition of scheme of start-ups prevents others from
availing the exemption.
• The labor laws:-
The labor laws may be abused as startups wouldn’t be inspected for
three years.
• Certification:-
A start-up shall be eligible for tax benefits only after it is certified by
an inter-ministerial board.
• Differentiation in Aim:-

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 Start-ups are backed with a full motive of just profits. In-fact most
startups works on a model, where their only aim is to get sold to
another big company. That is why they run on unhealthy completion,
giving unfeasible discounts; the only aim is get valued higher, capture
market and sell-out.

Effects of Start-up India on Indian Economy

• Promote Capital Generation:-
Start-up India will promote capital formation by mobilizing the idle
savings of our citizens. They employ resources for setting up their
enterprises. Such types of entrepreneurial activities lead to value
addition and creation of wealth, which is very essential for the
industrial and economic development of India.
• Employment Generation:-
Start-up India will provide instant large-scale employment to the
unemployed which is an unending problem of India. Small
entrepreneurs provide self-employment to artisans, technically
qualified persons and professionals.
• Ease of Doing Business:-
Promoting start-ups by improving ease of doing business is clearly at
the forefront of the Action Plan. A significant benefit a start-up
accrues under this policy is the waiver from labor inspections for 3
years.

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 PESTLE Analysis of Start-up India Action
Plan

• Political Factors:-
Political factors are the medium by which Government intervenes the
functioning of an enterprise. Government regulations are evaluated in
terms of its capacity to influence the business environment and
markets. The principle issues in this segment are political stability, tax
guidelines, trade regulations, safety regulations, labour laws, and
business laws.
Start-up India Action Plan Impact: The action plans suggest law
enforcement agencies to keep off the functioning of start-ups in the
first three years of its operations. But after three years, companies
need to follow the regulations. For Example- Tax exemptions, Self-
certifications for 3 years.
• Economic Factors:-

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 These factors include economic growth, interest rates, exchange rates,
and inflation rate. These factors extraordinarily affect how businesses
operate and make decisions.
Start-up India Action Plan Impact: There will be an improvement in
the ease of doing business especially for start-ups which will boost
entrepreneurship. There is a corpus fund for start-ups at lesser interest
rate which will improve the ease of setting up news businesses.
• Social Factors:-
These factors have a great impact on the buying patterns which is an
important determinant for businesses. High trends in social factors
affect the demand for a products and operational mode of enterprises.
Start-ups India Action Plan Impact: Start-ups action plan will change
the buying pattern and behavior of consumers as this action plan is
more focused on products and services which will be driven through
new technologies and innovations.
• Technological Factors:-
These factors include technological aspects like R&D activity,
automation, technology incentives and the rate of technological
change. These can determine barriers to entry, minimum efficient
production level and influence the outsourcing decisions.
Start-ups India Action Plan Impact: Though there is not enough space
for R&D activity in the start-ups action plan. This action plan would
be a key contributor to technological aspects like the rate of
technological changes i.e. technology beyond portal and mobile apps;
etc.
• Legal Factors:-

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 This factor includes consumer law, antitrust law, employment law, and
health and safety law. These factors can affect how company operates,
cost structure, and market demand for its products.
Start-ups India Action Plan Impact: Exemption of start-ups from labor
inspections for the first 3 years from labor department etc. will
definitely boost the business environment.
• Environmental Factors:-
These include ecological and environmental aspects such as weather,
climate change, environmental law etc. which may affect industries
such as tourism, farming, and insurance.
Start-ups India Action Plan Impact: There is no special mention about
in the announcements. However, the fund allotted through credit
guarantee scheme will cover risk if any occurs.

Role of Chartered Accountant in Start-up

India Initiative
• Business Licenses:-
It may surprise you, but doing almost any business in India, or even
running any kind of office or establishment, requires several licenses.
Some licenses are simple tax registrations. Some businesses just need
a trade license or Shops and Establishment Registration. For some
specific activities like manufacturing and export-import, you may need
a bunch of licenses. For employing more than 10 employees, you may
need various labour and employment related registrations. Not having
these things in order when you are growing fast can be fatal and slow
down investments, as investors will ask you to first sort of license
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 issues before they put in money. These things are seriously looked into
during any legal due diligence before investments are made.

Also, not following licensing norms leads to fines, costly legal suits
and even business shut-down. If you are a business owner in any
sector, you better have a sense of what licenses are essential. You
should also know what the important license conditions are and ensure
that these conditions are not being violated in course of your business.

I have played a key role in conceptualizing an online course offered by

National University of Juridical Sciences, Kolkata called “Diploma in
Entrepreneurship Administration and Business Laws” to
entrepreneurs. Recently, after taking the business license module of
our course, a student wrote an email to me. She learned how to get
licenses to export and import, and got the necessary registrations done
for her family business. Her family has been supplying leather goods
from UP over decades, but through an export house. Now that she
learnt how to get the paperwork done, she spoke to the elders in her
family and got their own export license! I was immensely proud.

• Accounts and Taxation:-

A lot of businesses completely fail on this point and many founders
face massive fines, possibility of imprisonment and highly
unproductive lawsuits and criminal cases with respect to tax bills,
simply due to negligence and ignorance, usually both combined. Take
the famous example of Su-Kam, the founder of which almost went to
jail due to non-payment of excise duty over years. He was simply not

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 aware that he needed to pay excise duty. However, ignorance of law is
no excuse in our country.

As the founder, the buck stops with you. So, you better have some
understanding of the accounting procedure and taxation aspects of
your business. If you ignore it because it seems boring and highly
technical, it will almost definitely come back later to bite you hard.
Outsourcing it blindly to a CA you know is also not advisable, because
stakes are sky-high here.

When the business is too small for the tax authorities to bother, you are
safe. However, as soon as the business starts growing, you will come
under the radar of tax officers, who will go over your accounts with
magnifying glasses to find something wrong (even in transactions that
occurred years earlier, when you were not really a ‘big company’
owner). If they find something, you will have to either make a costly
settlement or face a long legal war where you would end up paying a
lot to tax lawyers.

• Vendor contracts:-
The vendor contracts one enters into at the early stage of the business
can be very important: For example, if you have outside assistance on
design or development of the product, manufacturing contracts, EPC
contracts (relevant when one sets up a factory or plant), platform
contracts (for instance, at iPleaders we offer online courses and use
outsourced technology from WizIQ, GradeStack and Trutech for our
online courses and these contracts are very important to our business),
marketing contracts, content supply agreement, distributorship
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 agreements, advertisement agreements (for instance, we have several
long term contracts for advertising with many websites like
lawctopus.com or livelaw.in), franchisee agreements and so on –
depending on what business you are in.

Now imagine if some of these contracts you enter into contain some
hidden clauses that could trigger unforeseen price escalation, or gave
away the power to the other party to terminate without notice – your
business could be in chaos. Sometimes, people enter into
unenforceable contracts. More frequently they forget to include
important clauses in the contract that leaves them very vulnerable.

• Enforcing a contract:-
World Bank says that India ranks 184th in the world in terms of
easiness of enforcing a contract. This means India is one of the 5 worst
countries in the world when it comes to enforcing contracts. If you
can’t enforce contracts why should someone bother to uphold the side
of their obligations in an agreement?

This is why almost every businessman in India needs to be either a

muscleman or an expert at enforcing contracts if they want to survive
in the marketplace. Do not just enter into a contract and expect
everything will now go as clockwork. Big companies in India hire
contract managers and a battery of lawyers to ensure contract
performance! If you are a start-up founder or SME owner, you can
probably afford neither, so if you don’t plan ahead and build in certain
practices into your business, you are in grave danger. You can learn
about systems like arbitration (this can help you to bypass lengthy
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 court battles), advanced money recovery strategies deployed through
contracts, registration as MSME, which gives certain privileges which
will add great advantages to your business.

The role of professional chartered accountants in the start-up scheme

launched by our Prime Minister is essential, vast and comprehensive.
As the partners in nation building it is undoubtedly not only an
opportunity in professional domain but it is also a responsibility for
interest in large. As we see that the growing complexity has made the
business atmosphere comparatively difficult in terms of identification
of potential grey areas in which most of the start-ups might find
themselves in. The reason is that the start-ups that we are talking about
are conventionally not involved in normal routine trading activities but
are mainly involved in e-commerce activities.

So now it is essential to measure and understand how can chartered

accountants justify and help entrepreneurs in making sure that the
venture results into a profitable and successful adventure. So, let us
start with few points that are relevant for our discussion.

• Tax specialization:-
We know that chartered accountants are professionally trained tax
professionals. The fact that taxation is one of the main areas which are
start-up faces beyond the fundamental areas of finance and fundraising
is one of the criteria why chartered accountants play a significant and
crucial role to help smoothen the business operations.

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 We know that most of the transactions in start-ups especially in the
start-up are the e-commerce player requires a complete an exhaustive
structuring in terms of the taxation and the relevant events that a
company faces. Hence the relevancy of a person well equipped with
the tax laws whether it may be direct taxation, indirect taxation or any
other tax involved.

• Finance professional:-
Chartered Accountants are trained professionals who work in the
finance field. For start-ups undoubtedly one of the most key areas still
remains to be fundraising and managing their capital. It is a difficult
job to ensure the important expenses are being met off at the same
time the startup remains in a situation which is manageable in terms of
financial profitability.

In such a situation there are very important areas to manage in terms of

the working capital and the core seed capital of the start-up. Now here
how can chartered accountants play a crucial role is important to
understand. I see personally that there are two key areas that to look
for, one that one must manage the banking affairs of the organisation
in regard to financial needs like the banking overdraft etc, second is
broader activity of raising capital either by venture capitalists, angel
networks or by banking networks.

Chartered accountants need to equip themselves & understand how the

process works and accordingly act as an interface for the promoters
and the venture capitalists. Undoubtedly the promoters know more and
will always continue to know more in terms of their business but
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 chartered accountants understand the numbers better than anyone else
does and hence can always be back end support for such promoters to
give a good presentation and a good grasp of the affairs of the
organisation with a potential investor.

• Secretarial matters:-
Chartered accountants along with other professionals like company
secretaries are specialists in the matter of secretarial compliances. As
startup generally are in the form of a registered company ensuring the
compliances of companies act 2013 is of high relevance. Now the
companies act 2013 is an Act full of complexities and jargons which
are changing every day and the notifications are coming very
frequently that are resulting into changing of the law every next day or
two. The penal consequence is the act are significant and start-ups
cannot afford to miss the compliances which are relevant to be duly
complied with.

Being professionals it is the role of chartered accountants, company

secretaries and cost accountants to ensure that the start-ups are able to
comply and adhere to the norms laid down by The Companies Act
2013.

• Start-up scheme:-
A lot of tax benefits and other key liberalisations have been offered to
these start-ups to ensure that the country booms with start-ups and the
economic growth following it. The income tax benefits, the tax holiday
period benefits, the freedom from inspector raj, the reduction in the
cost of patenting, digitalisation, smoother incorporation and number
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 of other matters will require a clear due diligence before it is
implemented in the start-up.

Every single impact and every single assessment can be clearly passes
by chartered accountants domain and should be readily dealt by them.
For example, whether a start-up is eligible to enter into this start-up
scheme shall be a chartered accountants domain. Next, if the start-up is
available then the certification required to enter into this start-up
scheme should again be another domain. And the list continues.

• The concept of virtual CFO:-

Most of us understand the concept of virtual CFO. For those who do
not understand I would like to discuss here. Now, why is this relevant
for us? The relevancy is because the start-ups are generally coming
from people who are not of finance background. They might be
engineers or doctors or any other professionals with a brilliant idea and
the passion to convert this idea into a successful start-up.

In such a scenario chartered accountant can actually handle and

operate just like Chief financial officer of the start-up and ensure
complete ad hoc and bird eye view of the complete entity. His role
shall be to understand the areas of non-compliances and ensure
effective addressal of the matter if so required.

• Compliance checkup:-
In this modus of operation instead of choosing a full-time or part-time
compliance officer one can appoint a chartered accountant to do the
compliance audit of the organisation and identify key areas of non-
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 compliances which should be addressed and immediately worked
upon.

A chartered accountant is in a situation to best understand and identify

what are the areas which will require an addressable and attention
before the company can be presented to a venture capitalist for the
infusion of funds.

• Other areas:-
o Business Structuration,
o Advisory,
o Support in Integrating with Other Portals viz Flipkart, Snapdeal etc.
and to conduct necessary vat amendments are required by most of
these well established players,
o Highlight risk areas and suggesting potential mitigation strategies,
o Risk Minimization,
o Representations to Venture Capitalists.

Conclusion
Starting a startup is complex, time-consuming and life-altering. There
are many more things that go into running it than just providing the
product(s) or service(s) that your business offers, however, you will also
be responsible for your business’s finances, protecting your business
and personal assets, keeping your business and personal assets, keeping
your business legal, keeping records, managing employees, protecting
our nations resources and more. If you understand what you are doing

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 and know how to minimize the risks and challenges, the independence,
personal satisfaction and financial rewards you can achieve great
success as an entrepreneur. Start-up India Initiative has made
tremendous growth in Indian ecosystem. But still there are certain areas
in which scope of improvement is vast. One of such area is correlation
between Start-up India Incentives and The Income Tax Act, 1961. In
Budget, 2016, there are certain key changes made in The Income Tax
Act, 1961 so as to give exemptions to startups as specified in Start-up
Incentives. But still there is lot to think about. In one line we can say
that, Start-up India Initiative has a good future.

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