Lok Sabha Question No. 5534 (UNSTARRED), answered on 2022-04-06
Subject: Employment through Startups
Ministry: COMMERCE AND INDUSTRY
Asked by: Geeta Kora, Navneet Ravi Rana, Dileshwar Kamait

## GOVERNMENT OF INDIA MINISTRY OF COMMERCE & INDUSTRY

## DEPARTMENT FOR PROMOTION OF INDUSTRY AND INTERNAL TRADE LOK SABHA

UNSTARRED QUESTION NO. 5534. TO BE ANSWERED ON WEDNESDAY, THE 6 TH  APRIL, 2022.

## EMPLOYMENT THROUGH STARTUPS

## 5534.  SHRIMATI GEETA KORA: SHRIMATI NAVNEET RAVI RANA: SHRI DILESHWAR KAMAIT:

Will the Minister of COMMERCE AND INDUSTRY वाणिज्य एवं उद्योग मंत्री

be pleased to state:

- (a) the  number  of  employment  opportunities  created  through  Startups  in  the country, particularly in Maharashtra, Jharkhand and Bihar during the last three years along with the year-wise details of the contribution made by the Startups in Gross Domestic Product; and
- (b) the steps taken by the Government to promote private investment in Startups, including incentive packages?

## 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 employment opportunities created in last three years in the country, as reported by startups recognized by DPIIT, is as follows:

| Year   | Jobs Reported by Recognized Startups   |
|--------|----------------------------------------|
| 2019   | 1,41,303                               |
| 2020   | 1,68,612                               |
| 2021   | 2,03,448                               |
| Total  | 5,13,363                               |

The  number  of  employment  opportunities  created  in  Maharashtra, Jharkhand and Bihar during  last  three  years, as  reported  by  startups recognized by DPIIT, is as follows:

| Year   | Jobs Reported by Recognized Startups from Maharashtra Jobs Reported by Recognized Startups from Jharkhand Jobs Reported by Recognized Startups from Bihar   | Jobs Reported by Recognized Startups from Maharashtra Jobs Reported by Recognized Startups from Jharkhand Jobs Reported by Recognized Startups from Bihar   | Jobs Reported by Recognized Startups from Maharashtra Jobs Reported by Recognized Startups from Jharkhand Jobs Reported by Recognized Startups from Bihar   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 25,181 | 599                                                                                                                                                         | 1,225                                                                                                                                                       | 2019                                                                                                                                                        |
| 33,021 | 1,458                                                                                                                                                       | 2,335                                                                                                                                                       | 2020                                                                                                                                                        |
| 39,038 | 1,472                                                                                                                                                       | 3,158                                                                                                                                                       | 2021                                                                                                                                                        |
| Total  | 97,240                                                                                                                                                      | 3,529 6,718                                                                                                                                                 |                                                                                                                                                             |

There  is no centralized compilation of information on year-wise contribution made by startups in the Gross Domestic Production of the country.

- (b): Government of India as part of Startup India initiative has implemented Fund  of  Funds  for  Startups  (FFS)  Scheme and Startup India  Seed  Fund  Scheme (SISFS)  across  all  States/UTs  to  promote private investment in the Startups through Alternative Investment Funds (AIFs) and incubators.

Under FFS, a corpus of Rs. 10,000 crore has been sanctioned for the period  of  14 th   and  15 th   Finance  Commission  cycles.  Small  Industries Development Bank of India (SIDBI) is the implementing agency for the Scheme. The FFS Scheme does not directly provide financial assistance to  startups,  instead  supports  SEBI-  registered  Alternative  Investment Funds  (AIFs),  who  in  turn  invest  money  in  growing  Indian  startups through equity and equity-linked instruments.

Under the Startup India Seed Fund Scheme (SISFS), Rs. 945 crore has been sanctioned for period of 4 years starting from 2021-22. The funds are released to Startups through approved Incubators.

The Department engages with stakeholders on a regular basis to invite consultations  on  regulatory  issues  raised  by  Startups,  investors  and others in the ecosystem. These issues and recommendations are further shared with the concerned departments to bring about the necessary resolution and reforms. The list of key regulatory reforms undertaken by the Government to enhance ease of doing business, raising capital and reducing compliance burden for recognized startups is at Annexure-I .

Furthermore,  requirement  of  prior  turnover  and  experience  has  been relaxed  to  encourage  startups  to  participate  in  Government  tenders. Startups  have  been  exempted  from  requirement  of  earnest  money deposit.  'GeM  Startup  Runway'  has  been  launched  with  dedicated corner for startups to sell products and services to Government. A total of  13,130  recognized  startups  have  been  on  boarded  on  GeM,  with 1,26,006 orders from public entities as on 31 st  March 2022.

*****

## ANNEXURE-I

## ANNEXURE  REFERRED  TO  IN  REPLY  TO  PART  (b)  OF  THE    LOK  SABHA UNSTARRED QUESTION NO. 5534 FOR ANSWER ON 06.04.2022.

The list of key regulatory reforms undertaken by the Government to enhance ease  of  doing  business,  raising  capital  and  reducing  compliance  burden  for recognized startups:

## Reserve Bank of India

1.  Startup  enterprises  permitted  to  access  loans  under  External  Commercial Borrowing Framework up to USD 3 million. (October 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. (August 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. (February 2019)

## 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. 04-01-2017.
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. (November 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 Alternative Investment Funds can now invest in Non-Banking Financial Companies.  (5 th  May 2021)

## 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. (September 2017)
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  Employee  Stock  Ownership  Plans  (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 Differential Voting Rights (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 as  possible,  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 February 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 February 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 allow Non-Resident Indians (NRIs) to incorporate OPCs in India as well. (February 2021)

## 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. (February 2018)
27.  Definition of eligible business as stated in Section 80-IAC aligned with Startup's 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
4. notified by Central Government. The maximum amount that can be invested is INR 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. (February 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 INR 25 crore (February 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:
- ii. Continuity of 100% of original shareholders carrying voting power
- iii. Continuity of 51% shareholding/voting power or
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 CategoryI 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. (February 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 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. (Feb 2020)
41.  The Finance Bill 2021 provides for extension of the eligibility period to claim tax holiday for the startups by one more year. (Feb 2021)
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. (Feb 2021)
43.  The Finance Bill 2022 provides for extension of the eligibility period to claim tax holiday for the startups by one more year. (Feb 2022)
44.  The Finance Bill 2022 capped the surcharge on the long-term capital gain at 15% for unlisted companies from existing 37%. The effective rate of tax has been reduced from 28.5% to 23.9%. (Feb 2022)

## Department of Economics Affairs

45.  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

46.  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

47.  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

48.  The  Ministry  of  Labour  and  Employment  now  allows  Employees'  Provident Fund Organisation (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

49.  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. (November 2018)

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

50.  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. (February 2019)
51.  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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