Lok Sabha Question No. 110 (UNSTARRED), answered on 2022-02-02
Subject: Startup Companies
Ministry: COMMERCE AND INDUSTRY
Asked by: Rebati Tripura, Anurag Sharma

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE LOK SABHA

UNSTARRED QUESTION NO. 110.

TO BE ANSWERED ON WEDNESDAY, THE 2 ND  FEBRUARY, 2022.

## STARTUP COMPANIES

## 110.   SHRI REBATI TRIPURA: SHRI ANURAG SHARMA:

## Will the Minister of COMMERCE AND INDUSTRY वाणिज्य एवं उद्योग मंत्री

be pleased to state:

- (a) the details of number of startup companies started during the last three years in the State of Uttar Pradesh, Tripura and other North Eastern States;
- (b) the total amount of funds raised by these startup companies till date and the profitability established;
- (c) whether the Government has any proposal to ease the regulatory regime for startups, if so, the details thereof; and
- (d) the other steps taken by the Government to boost the startup India programme in the country especially in Uttar Pradesh (Jhansi and Lalitpur) and NER?

## ANSWER

## वाणिज्य एवं उद्योग मंत्रालय में राज्य मंत्री ( श्री सोम प्रकाश ) THE MINISTER OF STATE IN THE MINISTRY OF COMMERCE & INDUSTRY (SHRI SOM PARKASH)

- (a): The number of startups recognised by DPIIT during the last three years in the State  of  Uttar  Pradesh,  Tripura  and  other  North  Eastern  States  is  placed at Annexure-I.
- (b): There is no centralized compilation of information on the total amount of funds raised and profitability established by startups.
- (c): Government has taken various measures to enhance Ease of Doing Business, raising capital and reducing compliance burden. In this regard, a list of the 49 key regulatory reforms is placed at Annexure-II .
- (d): To  boost  the  startup  India  programme  Government  has  launched  various programmes across the country, State/UT-wise including Uttar Pradesh and NER which are placed at Annexure-III . All the initiatives under the Startup India are inclusive and are implemented across States, cities, towns and rural areas.

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## ANNEXURE-I

## ANNEXURE  REFERRED  TO  IN    REPLY  TO  PART  (a)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 110 FOR ANSWER ON 02.02.2022.

The number of startups recognised by DPIIT during the last three years in the State of Uttar Pradesh, Tripura and other North Eastern States is as below :

| States            |   Year 2019 |   Year 2020 |   Year 2021 |
|-------------------|-------------|-------------|-------------|
| Uttar Pradesh     |         887 |        1383 |        1977 |
| Tripura           |           7 |          23 |          12 |
| Nagaland          |           2 |           5 |           7 |
| Meghalaya         |           5 |           0 |           9 |
| Sikkim            |           2 |           0 |           4 |
| Mizoram           |           2 |           1 |           3 |
| Manipur           |           6 |          12 |          37 |
| Arunachal Pradesh |           1 |           1 |           2 |
| Assam             |          67 |         119 |         190 |

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## A.  Reserve Bank of India

1.  Startup  enterprises  permitted  to  access  loans  under  External  Commercial Borrowing Framework up to USD 3 million.(Oct, 2016)
2.  A  Securities  and  Exchange  Board  of  India  (SEBI)  registered  Foreign  Venture Capital  Investor  (FVCI)  may  contribute  up  to  100%of  the  capital  of  an  Indian company engaged in any activity  mentioned  in  Schedule  6  of  Notification  No. FEMA 20/2000, including startups irrespective of the sector in which it is engaged, under the automatic route. (Aug, 2017)
3.  An Indian startup having an overseas subsidiary, may open a foreign currency account with a bank outside India for the purpose of crediting to it foreign exchange earnings out of exports/ sales made by the said entity and/ or the receivables, arising out of exports/ sales, of its overseas subsidiary. (June, 2016)
4.  SOFTEX form filed by software exporters moved online. (Feb, 2019)

## B.  Securities and Exchange Board of India (SEBI)

5.  Lock in period for investments made by an Angel Fund reduced to 1 year from 3 years  as  amended  by  the  SEBI  (Alternative  Investment  Funds)  (Amendment) Regulations,2016, w.e.f. 04-01-2017.
6.  Angel Funds are allowed to invest in overseas venture capital undertakings upto 25% of their investible corpus in line with other AIFs as provided by the SEBI (Alternative  Investment  Funds)  (Amendment)  Regulations,  2016,  w.e.f.  04-012017.
7.  The upper limit for number of angel investors in a scheme is increased from forty nine  to  two  hundred  as  amended  by  SEBI  (Alternative  Investment  Funds) (Amendment) Regulations, 2016,w.e.f. 04-01-2017
8.  The  requirements  of  minimum  investment  amount  by  an  Angel  Fund  in  any venture  capital  undertaking  is  reduced  from  fifty  lakhs  to  twenty  five  lakhs  as amended  by  SEBI  (Alternative  Investment  Funds)  (Amendment)  Regulations, 2016,w.e.f. 04-01-2017
9.  'Operating Guidelines for Alternative Investment Funds in International Financial Services Centres' issued by SEBI. (Nov, 2018)
10.  Under  AIF  Regulations,  definition  of  Startup  has  been  aligned  with  DPIIT Notification  dated  19 th   February,2019  for  the  purpose  of  investment  by  Angel Funds in Startups (5 th  May,2021)
11.  The SEBI (Alternative Investment Fund) (Second Amendment) Regulations 2021 removes the list of restricted activities or sectors from the definition of Venture Capital Undertaking i.e. Category 1 AIFs can now invest in NBFCs.  (5 th  May 2021)

## C.   Ministry of Corporate Affairs

12.  The financial statement, with respect to private company (if such private company is a start-up) may not include the cash flow statement. (June, 2017)
13.  A private company, which is considered as a start-up for a period of five years from the date of its incorporation, is also allowed to accept deposits from members without any restriction on the amount. (Sep, 2017)

## ANNEXURE-II

## ANNEXURE  REFERRED  TO  IN    REPLY  TO  PART  (c)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 110 FOR ANSWER ON 02.02.2022.

## List of 49 key Regulatory Reforms

14.  Startup defined for the purpose of Companies Act, 2013: As per the definition, a start-up company means a private company incorporated under the Companies Act, 2013 and recognised as a 'start-up' in accordance with the notification issued by the Department for Promotion of Industry and Internal Trade. (June, 2017)
15.  Exemption from procedural compliance (e.g. such as issue of an offer circular or creation of a deposit repayment reserve) for raising deposits from shareholders. (June, 2017)
16.  In relation to a private company (if such private company is a startup), the annual return shall be signed by the Company Secretary, or where there is no Company Secretary, by the Director of the company. (June, 2017)
17.  A private company (if such private company is a startup) is required to conduct at least one meeting of the Board of Directors  in each half of a calendar year and the gap between the two meetings is not less than ninety days. (June, 2017)
18.  Name Reservation for Company incorporation: Rule 8, Companies (Incorporation) Rules, 2014 substituted with Companies (Incorporation) 5th Amendment Rules, 2019,which  provides  for  new  regulations  on  resemblance  with  an  existing company name, new categories of undesirable names of a company and list of words which can be used only after obtaining approval. (May, 2019)
19.  Amendment  in  Companies  (Share  Capital  and  Debentures)  Rules,  2014:  The Ministry of Corporate Affairs issued a notification on 16th August, 2019 increasing the period in which ESOPs could be granted to promoters and directors (holding more than 10% equity) of Startups, from 5 years to 10 years from the date of incorporation and thereby aligned the provisions of the Companies (Share Capital and Debentures) Rules with the provisions referred to in the DPIIT notification dated 19th Feb, 2019.

The notification also enhanced the limit on shares with Differential Voting Rights in  the  Company from 26% of the total post-issue paid  up equity  capital  of  the Company to 74% of the total voting power. Further,  the condition for the company to have consistent track record of distributable profits for the last three years for issue of DVR shares has been removed. (August 2019)

20.  Corporate  Social  Responsibility  Funds:  In  reference  to  section  135  of  the Companies Act 2013, Schedule VII has been amended to include  Contribution to incubators funded by Central Government or State Government or any agency or Public  Sector  Undertaking  of  Central  Government  or  State  Government,  and contributions to public funded Universities, Indian Institute of Technology (IITs), National Laboratories and Autonomous Bodies (established under the auspices of Indian  Council  of  Agricultural  Research  (ICAR),  Indian  Council  of  Medical Research (ICMR), Council of Scientific and Industrial Research (CSIR), Department  of  Atomic  Energy  (DAE),  Defence  Research  and  Development Organisation (DRDO), Department of Science and Technology (DST), Ministry of Electronics  and  Information  Technology)  engaged  in  conducting  research  in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs). (October 2019).
21.  As part of Government of India's Ease of Doing Business (EODB) initiatives, the Ministry of Corporate Affairs has launched a new integrated Web Form christened 'SPICe+' replacing the existing SPICe form. SPICe+ would offer 10 services by 3 Central Govt Ministries & Departments (Ministry of Corporate Affairs, Ministry of Labour  &  Department  of  Revenue  in  the  Ministry  of  Finance)  and  One  State Government(Maharashtra), thereby saving as many procedures, time and cost for Starting  a  Business  in  India  and  would  be  applicable  for  all  new  company incorporations w.e.f.23rd February 2020. SPICe+ has two parts: Part A-for Name reservation for new companies and Part B offering a bouquet of services viz. (i)

Incorporation (ii) DIN allotment (iii) Mandatory issue of PAN (iv) Mandatory issue of TAN (v) Mandatory issue of EPFO registration (vi) Mandatory issue of ESIC registration (vii) Mandatory issue of Profession Tax registration(Maharashtra) (viii) Mandatory Opening of Bank Account for the Company and (ix) Allotment of GSTIN (if so applied for) (February 2020)

22.  Amendment  in  Companies  (Share  Capital  and  Debentures)  Rules,  2014:  The Ministry of Corporate Affairs issued a notification on 05th June, 2020 increasing the period in which Sweat Equity shares, from 5 years to 10 years from the date of  incorporation  and  thereby  aligned  the  provisions  of  the  Companies  (Share Capital  and  Debentures)  Rules  with  the  provisions  referred  to  in  the  DPIIT notification dated 19th Feb, 2019. (June 2020)
23.  Amendment in Companies (Acceptance of Deposits) Rules, 2014: The Ministry of Corporate Affairs issued a notification on 07th September, 2020 increasing the period of issuance of convertible note, from 5 years to 10 years from the date of issue  and  thereby  aligned  the  provisions  of  the  Companies  (Acceptance  of Deposits) Rules, 2014 with the provisions referred to in the DPIIT notification dated 19th Feb, 2019. (September 2020)
24.  Amendment in Companies (Acceptance of Deposits) Rules, 2014: The Ministry of Corporate  Affairs  issued  a  notification  on  07th  September,  2020  whereby  the maximum limit in respect of deposits to be accepted from members by a private company shall not apply to a start-up company for 10 years from the date of its incorporation, instead of 5 years. (September 2020)
25.  Incorporation  of  One  Person  Companies  (OPCs)  by  allowing  OPCs  to  grow without any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time, reducing the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days and also allow NonResident Indians (NRIs) to incorporate OPCs in India. (February 2021)

## D.  Ministry of Finance

## Department of Revenue

26.  In the case of a domestic company, where its total turnover or the gross receipt in the previous year does not exceed two hundred and fifty crore rupees, income tax shall be charged at the rate of 25 percent of the total income. (Feb, 2018)
27.  Definition of eligible business as stated in Section 80-IAC aligned with Startups definition. (April, 2018)
28.  Introduction of Section 54EE in the Income Tax Act, 1961: Exemption from tax on long-term capital gain if such long-term capital gain is invested in a fund notified by Central Government. The maximum amount that can be invested is Rs 50 lakh. (May, 2016)
29.  Amendment in Section 54GB of Income Tax Act: 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 prescribed stake of equity shares of eligible Startup for utilizing the same for purchase of specified asset. (Feb, 2016)
30.  Minimum  Alternate  Tax  credit  allowed  to  be  carried  forward  up  to  fifteenth assessment years instead of ten assessment years. (2017)
31.  Exemption under section 80-IAC of Income Tax Act: Exemption to eligible Startup for any 3 consecutive assessment years out of 7 years (earlier 5 years) beginning from the year in which such eligible Startup is incorporated.(April, 2018)
32.  Exemption from tax under the provisions of section 56(2)(viib) to Startups for issue of shares above fair market value on the basis of a self-declaration to the Central Board of Direct Taxes. The aggregate amount of paid up share capital and share

premium of the startup after issue or proposed issue should not exceed Rs. 25 Crore (Feb, 2019)

33.  Taxation of convertible notes - Period for which a bond, debenture, debenturestock or deposit certificate was held prior to conversion shall be considered for determining the period of holding of such shares or debentures acquired upon conversion. (March, 2016)
34.  Amendment in Section 54GB of Income Tax Act w.e.f 1 st  April 2020: (August 2019)
- i. The condition of minimum holding of 50% of share capital or voting rights in the start-up relaxed to 25%
- ii. Extension of period under which benefit under section 54GB from for sale of residential property can be availed up to 31st March, 2021
- iii. Condition  restricting  transfer  of  new  asset  being  computer  or  computer software is to relaxed from 5 years to 3 years w.e.f. 1-4-2020
35.  Amendment in Section 79 of Income Tax Act (August 2019): Eligible Startups to carry forward their losses on satisfaction of any one of the two conditions:
- i. Continuity of 51% shareholding/voting power or
- ii. Continuity of 100% of original shareholders carrying voting power
36.  Pass through of losses allowed to Investment Funds i.e. Category I and II AIF similar to pass through of income. These amendments will take effect from the 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years (August 2019)
37.  The investment made by Venture Capital Fund of Category-I AIF in a startup was exempted from the applicability of the provisions of section 56(2)(viib) of the IT Act. This exemption has been extended to all sub-categories of Category-I AIF and Category-II AIF via introduction of 'specified funds' in the said section (August 2019)
38.  The Finance Act 2020 provides for amendment in section 80-IAC of the Incometax Act relating to special provision in respect of specified business. The provisions of section 80-IAC, inter alia, provide for a deduction of an amount equal to hundred per cent. of the profits and gains derived from an eligible business by an eligible start-up  for  three  consecutive  assessment  years  out  of  ten  years  vis-à-vis  the earlier norm of seven years at the option of the assessee and the total turnover of its business does not exceed hundred crore rupees in the previous year relevant to the assessment year for which deduction under this section is claimed. This amendment will take effect  from  1st  April,  2021  and  will,  accordingly,  apply  in relation to the assessment year 2021-2022 and subsequent assessment years. (Feb 2020).
39.  The Finance Act 2020 provides for amendment in section 80-IAC of the Incometax Act relating to special provision in respect of specified business. The provisions of section 80-IAC, inter alia, provide for a deduction of an amount equal to hundred per cent. of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee and the total turnover of its business does not exceed hundred crore rupees vis-à-vis the earlier norm of twenty-five crore rupees in the previous year relevant to the assessment year for which deduction under this section is claimed. This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years. (Feb 2020)
40.  The Finance Act 2020 provides for amendment in sections 156, 191 and 192 of the Income Tax Act laying to enable employees receiving specified security or sweat  equity  share  as  perquisite  under  section  17(2)(vi)  of  an  eligible  startup
14. referred to in section 80-IAC, to deduct or pay, as the case may be, tax on such income within fourteen days after the expiry of forty-eight months from the end of the  relevant  assessment  year;  or  from  the  date  of  the  sale  of  such  specified security or sweat equity share by the assessee; or from the date of the assessee ceasing to be the employee of the person, whichever is earlier, on the basis of rates in force of the financial year in which the said specified security or sweat equity share is allotted or transferred. This amendment will take effect from 1st April, 2020. As per the earlier norms, the said perquisite including ESOPs were taxed in the hands of the employee at the time of exercise of the option.
41.  The Finance Bill 2021 provides for extension of the eligibility period to claim tax holiday for the startups by one more year.
42.  The Finance Bill 2021 provides for extension of claiming Capital gains exemption for investment in startups by one year i.e. till 31 March, 2022.

## Department of Economics Affairs

43.  The Ministry of Finance now allows non-government provident funds, superannuation, and gratuity funds to invest up to 5 percent of their investible surplus  in  Category  I  and  II  Alternate  Investment  Funds  (AIFs)  registered  with SEBI. (March 2021).

## Insurance Regulatory and Development Authority

44.  The  Insurance  Regulatory  and  Development  Authority  of  India  (IRDAI)  has allowed insurance companies to invest in Fund-of-Funds (FoF) that invest within the country subject to certain conditions. (April 2021).

## Department of Expenditure

45.  Harmonization  of  Startup  Definition  under  the  Manual  for  Procurement  of Consultancy and other Services with the DPIIT notification dated 19 th  February 2019.

## Ministry of Labour and Employment

46.  The  Ministry  of  Labour  and  Employment  now  allows  EPFO  to  invest  up  to  5 percent of their investible surplus in Category I and II Alternate Investment Funds (AIFs) registered with SEBI. (April 2021)

## Ministry of Electronics and Information Technology

47.  Removal of clause from Electronic Development Fund (EDF) operating guidelines stating that if a fund draws from Fund of Funds for Startups, then they cannot draw from EDF and vice versa. (Nov, 2018)

## Ministry of Commerce and Industry, Department for Promotion of Industry and Internal Trade

48.  Amendment  in  the  definition  of  a  Startup:  An  entity  shall  be  considered  as  a Startup upto a period of ten years from the date of incorporation/ registration and turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees. (Feb, 2019)
49.  Ministry  of  Commerce  and  Industry,  Department  for  Promotion  of  Industry  and Internal Trade vide Gazette Notification No. G.S.R. 646(E). dated 21st September 2021 amended the Patent Rules. The Patent Rules have now extended the benefits related to 80% reduced fee for patent filing & prosecution to Educational institutions as well. (Sept 2021)

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## ANNEXURE-III ANNEXURE  REFERRED  TO  IN    REPLY  TO  PART  (d)  OF  THE  LOK  SABHA UNSTARRED QUESTION NO. 110 FOR ANSWER ON 02.02.2022.

## Programmes launched as part of Startup India Initiative

- i. Startup India Action Plan : An Action Plan for Startup India was unveiled on  16 th   January  2016.  The  Action  Plan  comprises  of  19  action  items spanning across areas such as 'Simplification and handholding', 'Funding support and incentives' and 'Industry-academia partnership and incubation'.  The  Action  Plan  laid  the  foundation  of  Government  support, schemes and incentives envisaged to create a vibrant startup ecosystem in the country.
- ii. Startup India: The Way Ahead : Startup India: The Way Ahead at 5 years celebration  of  Startup  India  was  unveiled  on  16 th   January  2021  which includes  actionable  plans  for  promotion  of  ease  of  doing  business  for startups, greater role of technology in executing various reforms, building capacities of stakeholders and enabling a digital Aatmanirbhar Bharat.
- iii. Startup India Seed Fund Scheme (SISFS) : Easy availability of capital is essential for entrepreneurs at the early stages of growth of an enterprise. The capital required at this stage often presents a make or break situation for startups with good business ideas. The Scheme aims to provide financial assistance to startups for proof of concept, prototype development, product trials,  market  entry  and  commercialization.  Rs.  945  crore  has  been sanctioned under the SISFS Scheme for period of 4 years starting from 2021-22.  It  will  support  an  estimated  3,600  entrepreneurs  through  300 incubators in the next 4 years.
- iv. Fund  of  Funds  for  Startups  (FFS)  Scheme :  The  Government  has established FFS with corpus of Rs. 10,000 crore, to meet the funding needs of startups. DPIIT is the monitoring agency and Small Industries Development Bank of India (SIDBI) is the operating agency for FFS. The total corpus of Rs. 10,000 crore is envisaged to be provided over the 14th and 15th Finance Commission cycles based on progress of the scheme and availability of funds. It has not only made capital available for startups at early stage, seed stage and growth stage but also played a catalytic role in terms of  facilitating  raising  of  domestic  capital,  reducing  dependence  on foreign capital and encouraging home grown and new venture capital funds.
- v. Ease of Procurement : To enable ease of procurement, Central Ministries/ Departments  are  directed  to  relax  conditions  of  prior  turnover  and  prior experience in public procurement for all Startups subject to meeting quality and  technical  specifications.  Further,  Government  e-Marketplace  (GeM) Startup Runway; a dedicated corner for startups to sell products & services directly to the Government.
- vi. Self-Certification under Labour and Environmental laws :  Startups are allowed to self-certify their compliance under 6 Labour and 3 Environment laws for a period of 3 to 5 years from the date of incorporation.
- vii. Income Tax Exemption for 3 years : Startups incorporated on or after 1st April 2016 can apply for income tax exemption. The recognised startups that are  granted  an  Inter-Ministerial  Board  Certificate  are  exempted  from income-tax  for  a  period  of  3  consecutive  years  out  of  10  years  since incorporation.
- viii. Exemption  for  the  Purpose  Of  Clause  (VII)(b)  of  Sub-section  (2)  of Section 56 of the Act : A DPIIT recognized startup is eligible for exemption from the provisions of section 56(2)(viib) of the Income Tax Act.
- ix. Startup India Hub : The Government launched a Startup India Online Hub on 19 th  June 2017 which is one of its kind online platform for all stakeholders of the entrepreneurial ecosystem in India to discover, connect and engage with each other. The Online Hub hosts Startups, Investors, Funds, Mentors, Academic Institutions,  Incubators, Accelerators,  Corporates,  Government Bodies and more.
- x. National  Startup  Awards :  National  Startup  Awards  is  an  initiative  to recognize and reward outstanding startups and ecosystem enablers that are building innovative products or solutions and scalable enterprises, with high potential  of  employment  generation  or  wealth  creation,  demonstrating measurable social impact.
- xi. International Access to Indian Startups : One of the key objectives under the Startup India initiative is to help connect Indian startup ecosystem to global startup ecosystems through various engagement models. This has been done though international Government to Government partnerships, participation in international forums and hosting of global events. Startup India has launched bridges with over 13 countries (Brazil, Sweden, Russia, Portugal, UK, Finland, Netherlands, Singapore, Israel, Japan, South Korea, Canada, Croatia) that provides a soft-landing platform for startups from the partner nations and aid in promoting cross collaboration.
- xii. Support for Intellectual Property Protection : Startups are eligible for fasttracked  patent  application  examination  and  disposal.  The  Government launched Start-ups Intellectual Property Protection (SIPP) which facilitates the startups to file applications for patents, designs and trademarks through registered facilitators in appropriate IP offices by paying only the statutory fees. Facilitators under this Scheme are responsible for providing general advisory  on  different  IPRs,  and  information  on  protecting  and  promoting IPRs  in  other  countries.  The  Government  bears  the  entire  fees  of  the facilitators for any number of patents, trademark or designs, and startups only bear the cost of the statutory fees payable. Startups are provided with an 80% rebate in filing of patents and 50% rebate in filling of trademark visa-vis other companies.
- xiii. Faster Exit for Startups : Ministry of Corporate Affairs has notified Startups as 'fast track firms' enabling them to wind up operations within 90 days visa-vis 180 days for other companies.

Further, Startups in the North Eastern States can also avail benefits of the North East  Industrial  Development  Scheme  (NEIDS),  notified  on  12.04.2018  for  a period of 5 years, upto 2022

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