The Indian government has eased funding rules for startups to help strengthen the startup ecosystem. A recent notification makes it easier for startups to receive funds of Rs. 25 lakh or more via convertible notes by exempting such funds from being considered a deposit. This will relieve startups from stringent rules around informing regulators or maintaining deposit reserves. The relaxation is only available to startups that meet government criteria. Separately, eligible startups will be exempt from paying angel tax on differential funding received from non-registered investors. So far, 571 startups have applied for benefits under the Startup India initiative, though only 12 currently qualify for the tax exemption.

1. Govt eases funding
rules for startups
Makes It Easier To Use Convertible Notes

2. Contd…
A recent notification issued by the ministry of corporate affairs (MCA) makes it
easier for startups to access funds via the convertible note route. This notification is
part of the all-round initiatives planned by the government to strengthen the
startup ecosystem in India.
Funds received by a startup amounting to Rs 25 lakh or more by way of a
convertible note, in a single tranche from a person, will not be treated as a
`deposit'. The convertible note is to be either converted into equity or repaid within
a period of five years.The Companies (Acceptance of Deposits) Rules have been
accordingly amended via a notification dated June 29.
Owing to this relaxation, the stringent rules relating to informing the registrar of
companies (RoC) or creating a deposit repayment reserve in the books of accounts
will not apply to the startup receiving funding via convertible notes. However, it
should be noted that the relaxation is available only to startups that meet the
governmentprescribed norms (as defined by the department of industrial policy
and promotion, or DIPP).

3. Contd…
This notification is the second such initiative to ease funding challenges for
startups. TOIhad in its edition da ted June 20 reported that eligible startups will be
exempt from angel tax. They will not have to pay any tax on the differential
between funding received from non-registered funds or high net worth individuals
and the fair market value of their entity.
Startups are defined by a DIPP notification dated February 17, 2016, to mean “an
entity, incorporated or registered in India not prior to five years, with annual
turnover not exceeding Rs 25 crore in any preceding financial ye ar“. Second, such
an entity is required to be engaged in “development, deployment or
commercialization of new products, processes or services driven by technology or
intellectual property“.
If a tax holiday is to be availed, the entity is required to be set up between April 1,
2016 and March 31, 2019 and an approval of an inter-ministerial board set up by
DIPP is required. The tax holiday is available for a period of three years in a block of
initial five years.

4. Contd…
571 apply for Startup India initiative
Mumbai: A status report issued by `Startup India', the government initiative
under the auspices of the DIPP, provides an indication of the interest in the
programme. Till June end, 571 applications had been received from
entrepreneurs. While 106 of these applications were complete, all of them
will not get a tax holiday (even as other incentives could be available) as a
majority of these companies were incorporated prior to April 1. Only 12
entities qualify for the tax holiday, subject to clearance by the inter-
ministerial board. Five of these entities have yet to provide the required
documents. DIPP is reaching out to top companies requesting them to set up
new incubators or scale up existing incubators in collaboration with
educational institutions. An online learning module will soon be available for
entrepreneurs.

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Parveen Kumar Chadha… THINK TANK
(Founder and C.E.O of Saxbee Consultants & Other-Mother
marketingandcommunicationconsultants.com)
Email :-saxbeeconsultants@gmail.com
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Address:-First Floor G-20(A), Kirti Nagar, New Delhi India Postal Code-110015