The Entrepreneur’s Guide to Starting a Business in India
Entrepreneurs in India have a wealth of resources to support them
by Tanisha Lele
Startups are becoming immensely popular in different parts of the world, especially in developing countries like India. They boost the economic growth of a country, as well as increase employment opportunities, which is why many nations promote and develop incentive schemes to encourage entrepreneurship.
In India particularly, national and state governments have enacted countless initiatives to stimulate the startup sector. Today, there is an entire ministry dedicated to facilitating startups – the Ministry of Skill Development and Entrepreneurship. But before we dive into that, let’s understand the basics of starting a business in India.
To fit the eligibility criteria for a startup in India, the organization should be a private limited company. Furthermore, it must get the approval of the Department of Industrial Policy and Promotion (DIPP), and a patron guarantee from the Intellectual Property office of India.
In addition to these requirements, the company needs to have financial backing from angel investment, an incubation program, or private equity, and a letter of recommendation from the same. The details of the funding must be registered with the Securities and Exchange Board of India (SEBI).
A startup continues to be regarded as one for a span of ten years, unless it reaches or crosses INR 1 billion (around US$13 million) in sales before the 10-year mark, in which case it will no longer be considered a startup and will not be exempted from paying tax.
The process of registering a startup includes steps like incorporating the business and registering under the Indian government’s latest initiative, Startup India. You will need to complete an online registration form on Startup India’s website, and submit various documents in PDF form online.
The documents that you need to upload include:
- A description of your business idea
- An incorporation certificate
- A letter containing details of the funding registered with SEBI (which should not be less than 20% in equity)
- A recommendation letter from an incubator that the Government of India recognizes (or any letter from the central or state Government of India)
- A registered patent from the Indian Patent and Trademarks office.
You will be provided with a recognition number once you’ve successfully registered.
Startups registered in India are eligible for tax exemptions for the first three years after certifying with the Inter Ministerial Board (IMB). After registering with Startup India, you can apply for exemption. You’ll need to provide reasoning as to why your business needs it, and also prove that your business idea is a fresh one.
Now that the basics are out of the way, we can dive into some of the major steps taken by the government of India to encourage startups. The Indian government has knitted together more than 50 schemes that are solely dedicated to helping startups. Some of the most significant initiatives undertaken include:
The Ministry of Skill Development and Entrepreneurship
This initiative was undertaken by Indian Prime Minister Narendra Modi in 2015, in a bid to encourage the government to pay more attention to the budding startup sector. Before this department was founded, this work was divided between several existing departments of the government. The idea behind this ministry was to enhance skill-development and outreach in order to positively impact this sector.
The NewGen Innovation and Entrepreneurship Development Centre was established to inculcate the spirit of innovation and entrepreneurship in the field of science and technology. The National Science and Technology Entrepreneurship Development Board launched this development center under the Indian Department of Science and Technology. It provides mentorship, guidance and other similar facilities to young minds in order to support them.
Support for International Patent Protection in Electronics and & Information Technology (SIPP-EIT) is a scheme that provides financial aid to Micro, Small and Medium Enterprises (MSMEs) and technology startups.
Most of these small industries find it difficult to bear the costs of protecting their Intellectual Property, especially in terms of international filings, which plays a crucial role in their competition across the globe. This scheme aims to strengthen their innovative advantage and increase their competitiveness.
Single Point Registration Scheme
Single Point Registration is a scheme that was launched in 2003, and was one of the earliest efforts taken by the Indian government to promote startups. The scheme is managed by the National Small Industries Corporation (NSIC) and aids in the registration of small and micro businesses.
In 2016, the Modi administration curated a platform to smoothen the process of registering and managing startups in India. Along with encouraging entrepreneurial ambitions, the intention was also to boost employability and wealth in the country.
Under this program, the length of time a company can be referred to as a ‘startup’ began at two years, and was eventually extended to seven, and then ten years. Other than this, a favorable tax exemption scheme has also been introduced to startups’ benefit. The Startup India initiative has continued to introduce various new policies to citizens so as to make business operations smoother and easier.
The government-to-business or G2B portal was launched in five Indian states including Maharashtra, Delhi, Haryana, Andhra Pradesh, and Tamil Nadu. This initiative serves as a communication center for the nation, where investors and businesses can interact and collaborate. Its main objective remains to create a safe business environment for citizens interested in entrepreneurship.
Credit Guarantee Scheme for Startups
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), set up by the Government of India, aims to provide loans to small and micro businesses, with no collateral needed, and at subsidized interest rates. The government provides a maximum amount of up to INR 10 million (around US$131,000) under this scheme, either in the form of working capital or a term loan.
Multiplier Grants Scheme
The Multiplier Grants Scheme was initiated by the Indian Department of Electronics and Information Technology. It was established as a platform where industries could collaborate with both the government’s and premier academic R&D institutions for developing products and packaging.
As per the scheme, if a company supports R&D into products or packages that can be retailed commercially, then the government will also lend financial support to these companies. However, these grants will not extend beyond INR 20 million (around US$263,000). The funding should be dedicated to a single project, whose duration must be less than two years and must be undertaken by an individual company. For collaborative projects between companies, or undertaken by an association of several companies, the grant may be extended to close to INR 40 million (US$526,000) across the duration of a three-year project.
Gone are the days when the problems of setting up a startup outnumbered the benefits. The efforts taken by the Indian government have led to a marginal increase in the number of startups – one KPMG report estimated that there are up to 50,000 startup ventures in India today.
Entrepreneurial minds in the country are making the best of the facilities provided to them, spurring further initiatives, grants, and incentives. Although registering a startup may have been tedious in earlier years, the process has now become both encouraging and inviting, with a slew of extra schemes to make the entrepreneurial journey ever-smoother.
Photo by Daria Nepriakhina on Unsplash