Lok Sabha Question No. 3953 (UNSTARRED), answered on 2016-12-09
Subject: Access to Funds for Startups
Ministry: CORPORATE AFFAIRS
Asked by: ASADUDDIN OWAISI

## GOVERNMENT OF INDIA

## MINISTRY OF CORPORATE AFFAIRS

LOK SABHA UNSTARRED QUESTION NO. 3953 ANSWERED ON FRIDAY, THE 9th DECEMBER, 2016/ AGRAHAYANA 18, 1938 (SAKA)

## ACCESS TO FUNDS FOR STARTUPS

## QUESTION

3953. SHRI ASADUDDIN OWAISI:

Will the Minister of CORPORATE AFFAIRS कारपोरेट कार्य मंत्री

be pleased to state:

- (a)  whether the Government has made it easier for startups to access funds via the convertible note route and if so, the details thereof;
- (b)   whether under this scheme funding of Rs.25 lakhs or more by convertible note in a single tranche not termed as a deposit;
- (c)  if so, whether the Government has amended the Companies Laws to this effect; and
- (d) if so, the other facilities being given to encourage startups in the country? ANSWER

THE MINISTER OF STATE (SHRI ARJUN RAM MEGHWAL) IN THE MINISTRY OF CORPORATE AFFAIRS ( श्री अर्जुन राम मेघवाल ) कारपोरेट कार्ु मंत्रालर् में राज्र् मंत्री

(a)  to  (d):-  The  Companies  (Acceptance  of  Deposit)  Rules,  2014  have  been amended to provide that an amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person shall not be treated as a deposit. Further, since the launch of startup India programme, a number of initiatives have been taken to promote startups.  Details are as per Annexure-A.

*******

## Annexure-A

## ANNEXURE REFERRED TO IN ANSWER TO LOK SABHA UNSTARRED QUESTION NO. 3953 FOR 09.12.2016 REGARDING ACCESS TO FUNDS FOR STARTUPS

- A. Measures taken by Ministry of Corporate Affairs
1. Relaxations for companies, including start-ups have been provided through changes in various rules notified under Companies Act, 2013, and include the following:-
- a) the upper limit on the acceptance of deposits has been enhanced to 35% of net worth instead of earlier 25%;
- b) allowing  start-ups  to  issue  Employee  Stock  Options  to  promoters  working  as employees;
- c) increasing the limits with regard to sweat equity that can be issued by a company from 25% of paid up capital to 50% of paid up capital;
2.   Seamless availability of names and quicker incorporation: - The name availability guidelines have been amended to allow the companies to select innovative names. The process of making the names available has been entrusted to a dedicated 'Central Registration Centre' (CRC), whereby names are being approved within next business day. CRC is also handling incorporation/ registration of companies. Incorporation is being done in a day when the applicant opts for filing integrated incorporation form known as SPICe.
3.        Exemptions  under  section  462  granted  to  four  classes  of  companies  -  private companies, Government companies, Nidhis and charitable companies, exempting such companies from various compliances and other requirements of the Companies Act, 2013. The exemptions provided to private companies have reduced the compliance burden on start-ups.
- B. Measures taken by Department of Industrial Policy and Promotion.
1. Fund of Funds

For providing fund support for Startups, Government has created a 'Fund of Funds for Startups (FFS)' at Small Industries Development Bank of India (SIDBI) with a corpus of

Rs. 10,000 crore. The  FFS  shall  contribute  to  the  corpus  of  Alternate  Investment  funds  (AIFs)  for investing  in  equity  and  equity  linked  instruments  of  various  Startups.  The  FFS  is managed by Small Industries Development Bank of India (SIDBI) for which operational guidelines have been issued. In 2015-16, Rs. 500 crores was released towards the FFS corpus.

2.   Credit Guarantee Fund for Startups
2.  Since debt funding for Startups is perceived as high risk activity, a Credit Guarantee Fund for Startups is being setup with a budgetary corpus of Rs 500 crore per year, over the next four years, to provide credit guarantee cover to banks and lending institutions providing loans to Startups. Once rolled out, the scheme, in the lines of credit guarantee scheme for MSME, is likely      to provide a huge impetus for enabling flow of much needed credit to the
3.  Startups which may run into several thousands of crores.

## Contd….P.2/

## 3.    Relaxed Norms in Public Procurement for Startups

Provision has been introduced in the procurement policy of Ministry of Micro, Small and Medium Enterprises (Policy Circular No. 1(2) (1)/2016-MA dated March 10, 2016) to relax norms pertaining to prior experience / turnover for Micro and Small Enterprises. Department of Expenditure has issued a notification for relaxing public procurement norms in respect of medium enterprises by all central Ministries/Departments.

## 4.  Tax Incentives:

##  3 Year Tax Exemption

The Finance Act, 2016 (Section 80- IAC) has provision for Startups (Companies and LLPs)  to  get  income  tax  exemption  for  3  years  in  a  block  of  5  years,  if  they  are incorporated between 1st April 2016 and 31st March 2019. To avail these benefits, a Startup must get a Certificate of Eligibility from the Inter-Ministerial Board.

##  Removal of Angel Tax:

Tax exemption on investments made in excess of face value in the shares of a Startup company has been introduced on 14 June 2016.

-  Tax Exemption on Capital Gains:

Section 54 EE has been introduced under the Finance Act, 2016 which provides for exemption of capital gain arising out of transfer of long term capital asset invested in a fund notified by Central Government.

Section 54GB of Income Tax Act, 1961 has been amended to provide for exemption from tax on capital gains arising out of sale of residential house or a residential plot of land if the amount of net consideration is invested in equity shares of eligible Startups.

## 5.   Legal Support and Fast-tracking Patent Examination at Lower Costs

A scheme for Startups IPR Protection (SIPP) for facilitating fast track filing of Patents, Trademarks and Designs by Startups has been introduced. The scheme provides for expedited examination of patents filed by Startups. This will reduce the time taken in getting patents. The fee for filing of patents for Startups has also been reduced up to 80%.  Panels of facilitators for Patents and Trademark applications have been formed to facilitate the process of patent filing and acquisition. The facilitators would provide legal guidance and handholding through the entire patent acquisition process free of cost.

## 6. Self-Certification based Compliance Regime:

Compliance norms relating to Environmental and Labour laws have been eased in order to reduce the regulatory burden on Startups thereby allowing them to focus on their core business and keep compliance costs low. Ministry of Environment and Forests (MoEF) has published a list of 36 white category industries. Startups falling under the 'White category' would be able to self-certify compliance in respect of 3 Environment Acts -

-  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 Contd….P.3/

Further,  Ministry  of  Labour  and  Employment  (MoLE)  has  issued  guidelines  to  State Governments whereby Startups shall be allowed to self-certify compliance in respect of 6 Labour laws. These shall be effective after concurrence of States/UTs. The Acts are:

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 So  far  9  States  have confirmed compliance to the advisory issued by Ministry of

Labour and Employment (MoLE):

-  Rajasthan
-  Uttarakhand
-  Madhya Pradesh
-  Chhattisgarh
-  Delhi
-  Jharkhand
- 
- Gujarat
-  Chandigarh
- 
- Daman & Diu
7.    Setting up Incubators
-  Under Atal Innovation Mission, Niti Ayog will set up Atal Incubation Centers (AICs) in public  and  private  sector.  NITI  Aayog  has  received  3658  applications  (1719  from academic  institutions  and  1939  from  non-academic  institution)  for  setting  up  Atal Incubation Centers (AICs) from both Public and Private sector organizations.
-  Under the Mission, a grant-in-aid of Rs. 10 crore would be provided to scale up an existing incubator for a maximum of 5 years to cover the capital and operational costs in running the center. NITI Aayog has received 232 applications for providing scale up support for established incubation centers.
8.      Setting up of Startup Centers and Technology Business Incubators (TBIs)
- 14  Startup  Centres  and  15  Technology  Business  Incubators  are  to  be  setup collaboratively  by  Ministry  of  Human  Resource  Development  (MHRD)  and  the Department of Science and Technology (DST).  Out of the 14 Startup Centers, 10 have been approved. Once MHRD releases its share of Rs. 25 lakhs each for the Startup centers, the Startup centers would be supported by DST by December, 2016.

The target of sanctioning 15 TBIs is expected to be achieved by December 2016.

9. Research Parks
2. 7 Research Parks will be set up as per the Startup India Action Plan. Out of these 7, IIT Kharagpur  already  has  a  functional  Research  Park.  Further,  DST  will  establish  1 Research Park at IIT Gandhinagar and the remaining 5 shall be set up by Ministry of

Human Resource Development (MHRD) at IIT Guwahati, IIT Hyderabad, IIT Kanpur, IIT Delhi and IISc Bangalore. ******