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Unravelling Opportunities: Subsidy Schemes For Technology Start-Ups In India

In the dynamic landscape of India's burgeoning start-up ecosystem, navigating the labyrinth of governmental policies and subsidy schemes is both crucial and challenging for emerging technology companies. As the nation propels towards innovation and entrepreneurship, understanding the intricate web of subsidies becomes paramount for start-ups to leverage available support and foster sustainable growth. This article aims to dissect the myriad subsidy schemes tailored for technology start-ups in India, delving into their eligibility criteria and the potential impact on the burgeoning entrepreneurial ventures. By shedding light on these pivotal aspects, this legal analysis endeavours to empower start-ups with the knowledge necessary to capitalize on governmental support, fostering an environment conducive to their success and contributing to India's vibrant start-up landscape.
  1. Startup India Action Plan:
    Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Start-ups in the country.

    Under the Startup India Action Plan, start-ups that meet the definition as prescribed under Notification G.S.R. 127 (E) are eligible to apply for recognition under the program. Section 1(a) of G.S.R. 127 (E) reads as follows:

    An entity shall be considered as a Startup:
    • Upto a period of ten years from the date of incorporation/ registration, if it is incorporated as a private limited company (as defined in the Companies Act, 2013) or registered as a partnership firm (registered under section 59 of the Partnership Act, 1932) or a limited liability partnership (under the Limited Liability Partnership Act, 2008) in India.
    • Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded one hundred crore rupees.
    • Entity is working towards innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation.
    Provided that an entity formed by splitting up or reconstruction of an existing business shall not be considered a 'Startup'. An eligible entity as startup may apply for recognition using the Department for Promotion of Industry and Internal Trade ("DPIIT") portal and shall accompany such application with all necessary documents and information including but not limited to the company's Certificate of Incorporation and a write-up about the nature of business. Post getting recognition, a start-up may apply for:
    • Tax exemption under Section 80IAC of the Income Tax Act, of 1961. After getting clearance for tax exemption, the start-up can avail tax holiday for three consecutive financial years out of its first ten years since incorporation.
    • Tax exemption under Section 56 of the Income Tax Act (Angel Tax) if the aggregate amount of paid-up share capital and share premium of the start-up after the proposed share issue, if any, does not exceed INR 25 Crore.
    To be eligible for Startup Recognition, the following conditions must be met:
    1. The start-up should be incorporated as a private limited company or registered as a partnership firm or a limited liability partnership.
    2. Turnover should be less than INR 100 Crores in any of the previous financial years.
    3. An entity shall be considered as a start-up up to 10 years from the date of its incorporation.
    4. The start-up should be working towards innovation/ improvement of existing products, services and processes and should have the potential to generate employment/ create wealth.
  2. Electronics Development Fund Policy
    Electronics Development Fund Policy provides a framework to set up an Electronics Development Fund ("EDF") as a fund of funds which will foster innovation, research, and development activities in technology sectors like electronics, IT and nano-electronics. EDF will support venture funds and angel funds, which will be professionally managed and are dedicated to these sectors.

    The objective of the EDF policy is to support 'Daughter Funds' including early stage angel funds and venture funds in the area of electronics system design and manufacturing, nano-electronics and IT. The supported Daughter Funds will promote innovation, R&D and product development within the country by providing risk capital to companies developing new technologies operating in this sector.

    The various Daughter funds under this scheme that may be applicable to the Company are as follows:
    1. Endiya Seed Co- Creation Fund:
      Endiya is a launch pad for early-stage product companies focusing on digital industry and intelligent mobility, digital health and life sciences, and enterprise digital adoption. It aims to foster innovation and product development by investing in IP/ R&D/ product start-ups in the areas of technology (IoT, Fabless Semiconductors, Saas and IT), healthcare (digital health, medical devices, nanotech in pharma/ biotech) & consumer tech, focused on tackling India problems with a potential to scale globally. The fund primarily invests in seed & pre-series A rounds, with some room for flexibility on both ends.
    2. Aruha Technology Fund I:
      This fund focuses on investments in early/seed stage investments in deep technology areas of ESDM, IT including VLSI, design/Semicon, information on Security and services with an emphasis on Innovation, Product Development, IP Creation & disruptive technologies for social impact in India.
    3. Unicorn India Venture Fund I:
      The Unicorn Venture fund is focused on primary sectors such as SMAC(Social Media/Mobility/Analytics/Mobility/Cloud), Nano Technology, IT , Internet of things and Financial Technology/Cyber Security.
    4. Yournest IndiaVC Fund:
      The Yournest IndiaVC Fund invests mainly in startups in the domain of Electronic System Design & Manufacturing (ESDM), Nano-electronics and Information on Technology.
      Its portfolio companies are generally involved in the fields of:
      • New product development
      • New and innovative services offerings
      • Development of new technology
      • Innovation in the business model
      • Scalable Idea in an emerging sector
      • Disruption with automation
      • Driving R&D in electronics, IT & Nano-electronic across verticles.
    5. PI Venture Fund I:
      This fund Invests in early-stage ventures with combination of the sectors of Electronics, Intellectual Property, Internet of things and Nano-tech Information Technology.
    6. Venturest Proactive Fund II:
      This fund focuses on investments in the technology-driven business, including both hardware and software that access the needs of costumer, semi-urban/rural MSMEs and enterprises. The technologies relating to hardware includes IT, Electronics, Enterprise Application, innovations in energy efficiency.
    7. Exseed Electronics Fund:
      This fund focuses on investments in ESDM, Nano-electronics and IT Sector.
    The government is only a minority participant in Daughter Funds and the market dynamics determine the demand for the Daughter Funds. The entire responsibility of raising the fund, investing and monitoring individual investments is the responsibility of the Fund Manager of the respective Daughter Fund. As such, certain Daughter Funds may be closed for fresh investments, and this may change from time to time.
  3. NASSCOM Start-ups Program Scheme:
    NASSCOM 10K is a programme launched by the technology lobby group NASSCOM to support and impact 10,000 start-ups in India. It has multiple sub programmes such as 'NASSCOM Industry Partner Program'("nIPP") which is India's largest industry-backed open innovation platform that facilitates sustained engagement between large corporations and innovative technology start-ups in India. The programme's scope includes: (i) Corporate - Startup Engagement (ii) Ecosystem Engagement (iii) Innovation Challenges (iv) Brand Advocacy (v) Thought Leadership.

    NASSCOM also runs a start-up incubation program designed to help start-ups looking for a kick-start and connects. The NASSCOM start-ups virtual incubation program enables start-ups to scale up with various opportunities and industry connects digitally. It provides market access; investor connects; access to state and government programs, startup kit; mentoring- one-on-one and in groups- by industry experts; other tools to scale such as webinars, meetups, CXO roundtables workshops and more.

    Only start-ups with a minimum viable technology product (not services) are eligible to apply for the programs. It has been strongly suggested that the product is beyond its ideation phase when applied.
  4. Draft National Deep Tech Startup Policy:
    The Draft National Deep Tech Startup Policy ("NDTSP") aims to support and nurture the unique requirements of Deep Tech start-ups in India. Deep Technology refers to innovations founded on advanced scientific and technological breakthroughs.

    The poicy is not in force yet. However, to be eligible under the NDTSP, the entity must be a deep-tech start-up. The draft NDTSP defines and differentiates between a Hardware Deep Tech startup and a Service Deep Tech startup as follows:
    1. Hardware Deep Tech startup is a startup with the expressed objective of providing technology solutions requiring R&D > 3 years and Rs 10 Cr. capex (non-R&D investment) before commercialization and which has potential for impacting the economy (Economic IRR > 30%).
    2. Service Deep Tech startup is a startup with the expressed objective of providing technology solutions requiring R&D > 1 year and Rs 1 Cr. capex (non-R&D investment) before commercialization and which has potential for impacting the economy (Economic IRR > 30%).
Further, a deep tech start-up should involve early-stage technologies based on scientific or engineering advancements, which are yet to be developed for any commercial applications and which typically produces a solution along an unexplored pathway based on new knowledge within a scientific or engineering discipline or combining knowledge from multiple disciplines.

Concluding Remarks:
As start-ups continue to chart new territories and drive economic growth, sustained collaboration between the government, industry players, and the start-up community will be instrumental in realizing the full potential of subsidy schemes to catalyse the transformative journey of technology start-ups in India.

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