Start ups and MSMEs: Registration and Advantages features of Atma Nirbhar package

Start ups and MSMEs: Registration and Advantages features of Atmanirbhar package from Novojuris

Start Ups: Definition and criteria

Tenure:

A private limited company, a registered partnership or a limited liability partnership in India is considered a startup up to a period of ten years from the date of incorporation/ registration.

Turnover:

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.

Important to note: an entity formed by splitting up or reconstruction of an existing business shall not be considered a ‘Startup’

Process of Registration

    1. Incorporating the business:
      • The entity operating/ proposing to operate the business must be registered as a private limited company, a partnership or a limited liability partnership in India.
    2. Register with Startup India portal set up by Department for Promotion of Industry and Internal Trade (DPIIT)

    3. The DPIIT shall examine the information provided, make enquiries (if required) and recognize or reject the application.
    4. Recognition Certificate:
      • Upon acceptance by the DPIIT, the certificate of recognition will be assigned along with the recognition number to the entity.

List of Documents

  1. Certificate of Incorporation or registration certificate.
  2. PAN card.
  3. MOA & AOA in case of company and partnership deed for LLP & partnership firm.
  4. List of all directors/members/partners along with their email id and photograph.
  5. URL link of a website and social profile of the entity and directors/ members/ partners.
  6. Information related to Intellectual Property Rights in the name of the entity (whether the entity has registered any IPR or it is in the process of registration)
  7. Information related to funds if the entity has availed any fund from investors
  8. If the entity has received an award or certificate or recognition then such information needs to be provided.

Advantages of recognition

  1. Exemption under Section 56(2)(vii)(b) of the Income Tax Act, 1961:
    • Under the Income Tax Act, 1961, where a company receives any consideration for issue of shares which exceeds the fair market value of such shares, such excess consideration is taxable in the hands of the recipient as income from other sources. The exemption under this section excludes the excess consideration from being taxed.
  2. Exemption under Section 80-IAC of the Income Tax Act, 1961:
    • A registered startup can avail of an exemption from payment of income tax for three consecutive years out of the first 10 years from the date of its incorporation.
  3. Exemption under Section 54(GB):
      1. At least 25% of shareholding or voting power of that investor in startup.
      2. That startup purchases new asset (plant and machinery, equipment, computer and software) within one year of date of subscription.
      3. The new asset shall not be transferred for 5 years (or 3 years for computer and software).
      4. Invested Shares also shall not be transferred till 5 year.
      5. Section 54GB relates to tax on long-term capital gains received upon the sale of a residential property of an individual. The government has exempted individuals from payment of this tax if such long-term capital is invested in a registered startup on complying with below conditions:

    This benefit is extended till 31st March 2021.

  4. Self-certification under labour and employment laws:
      1. The Building and Other Construction Workers’ (Regulation and Employment and Conditions of Service Act, 1996).
      2. The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1996.
      3. The Payment of Gratuity Act, 1972.
      4. The Contract Labour (Regulation and Abolition) Act, 1970.
      5. The Employees Provident Funds and Miscellaneous Act, 1952.
      6. The Employees State Insurance Act, 1948.
      7. The Water (Prevention & Control of Pollution) Act, 1974.
      8. The Water (Prevention & Control of Pollution) Cess (Amendment) Act, 2003.
      9. The Air (Prevention & Control of Pollution) Act, 1981.
      10. A registered startup is allowed to self-certify their compliance under six labour laws and three environment laws (detailed below).

    This is allowed for a period of five years from the date of incorporation of the entity.

  5. Issuance of Convertible Note:
    • Convertible Note is an instrument only eligible to be issued by a startup company evidencing receipt of money initially as debt, which is repayable at the option of the holder, or which is convertible into such number of equity shares of such startup company, within a period not exceeding five years from the date of issue of the convertible note, upon occurrence of specified events as per the other terms and conditions agreed to and indicated in the instrument.
  6. Issuance of Stock Options:
    • As per Rule 12 of the (Share Capital and Debentures) Rules, 2014, ESOPs can be issued only to the “employees” of an unlisted private limited company and the definition of “employees” excludes a promoter or a person belonging to the promoter group. However, such exclusions are not applicable on a registered start up for a period of 10 years from the date of its incorporation or registration.
  7. Fast-track resolution of insolvency proceedings:
    • As per the code, insolvency proceedings will be completed in 90 days. The adjudicating authority, the National Company Law Tribunal (NCLT), may extend the period of 90 days by a further 45 days for completion of the process.
  8. Registration of Intellectual Property:
    • Upon registration of intellectual property, 50%-80% government fee concessions are available.
  9. Relaxation in public procurement norms
    • To allow startups to participate in public procurement, the eligibility conditions of prior turnover and/or demonstration of experience and security cover for projects have been exempted depending on the goods or services.

MSMEs: Definition

  • MSME stands for Micro, Small and Medium Enterprises.
  • MSMEs are governed by Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act, 2006), amended from time to time.
  • Any enterprises which are engaged in small or medium business will be termed as MSME and is eligible to receive Udyam Registration under the Act.
  • According to the Act, “Enterprise” means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, or engaged in providing or rendering of any service or services.

Criteria

  • The classification of MSME has been revised and is applicable w.e.f. 1st July 2020.
  • The enterprise would now be classified on the basis of Investment and Turnover and after the amendment there will is no more a distinction between Manufacturing and Service MSMEs.
Classification Micro Small Medium
Manufacturing Enterprises and Enterprises rendering Services Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore; and Annual Turnover not more than Rs. 5 crore Investment in Plant and Machinery or Equipment: Not more than Rs.10 crore; and Annual Turnover not more than Rs. 50 crore Investment in Plant and Machinery or Equipment: Not more than Rs.50 crore; and Annual Turnover not more than Rs. 250 crore.

Udyam Registration Process and List of Documents

Furnish Udyam Registration Online on the portal available at https://udyamregistration.gov.in/Government-of-India/Ministry-of-MSME/online- registration.htm

Requisite information required for registration process is detailed below:

  1. Aadhar Card of authorized signatory viz. Proprietor, Partner (in case of Partnership Firm or LLP ) or Director (In case of Company).
  2. Mobile Number which is linked to the said Aadhar Number.
  3. PAN of the Enterprise for whom the registration is sought.
  4. Location of Plant and Machinery and location of the Office.
  5. Business Activity carried out on the basis of NIC (National Industry Classification Code).
  6. Bank Account details of the enterprise.
  7. Number of Employees working in the organization.
  8. Amount invested in Plant and Machinery.

Advantages of recognition

  1. Protection under the Act against delay in payment:
    • As per the MSME Act, a buyer has to make the payment to MSME supplier within the time period mentioned in the agreement between them and in no case it should be extended beyond 45 days.
    • In case of default, the buyer has to pay compound interest with monthly rest at three time of bank rate on the due amount to the seller (MSME).
    • Additionally, the interest payment will be disallowed as expenditure under IncomeTaxAct.
  2. Collateral free credit:
      • Under CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises) scheme, MSME’s can avail maximum collateral free credit upto of Rs. 200 Lakhs from Eligible Institutions. A certain percentage of fee is charged on the Guarantee Cover amount for the first year and on the outstanding amount in subsequent years.

    Guarantee Cover amount means maximum cover available per eligible borrower of the amount in default in respect of the credit facility extended by the lending institution.

  3. Trade Receivables Discounting System (TReDS):
    • TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of MSMEs through multiple financiers.
    • It enables market making and discovery of competitive rates for invoice/exchange bills of MSME sellers through an auction mechanism.
  4. Interest Equalization Scheme:
    • Under this Scheme, on Pre and Post Shipment Rupee Export Credit, the Interest Equalization @ 5% per annum is available to all MSME exporters across all their merchandise exports. This scheme is applicable till 31st March 2021 (extended on May 13, 2020).
  5. Credit rating support:
    • Under this scheme a percent of Rating Agency charges are reimbursed by Ministry of SSI through NSIC. Reimbursement of charges is based on the turnover of the MSEs.
  6. Technology Up gradation support:
    • Credit Linked Capital Subsidy Scheme (CLCSS) for technology up gradation, provides an upfront capital subsidy for upgrading technology for new or existing MSEs. This scheme currently encompasses 51 sub-sectors/products.
    • It provides upfront capital subsidy of 15 per cent (limited to maximum of Rs. 15 lakhs) on Institutional finance availed by them, applicable only on new investments (no second hand equipment is eligible under this scheme). Maximum limit of eligible loan for calculation of subsidy under the Scheme is One crore Rupees.
  7. Reimbursement of certification fees:
    • The scheme envisages one time reimbursement of charges incurred for acquisition of ISO9000/ISO-14001/HACCP certification to the extent of 75% of expenditure, subject to a maximum of Rs. 75,000/-in each case.
  8. Assistance to MSMEs - Barcode:
    • Under this scheme, the Ministry of MSE will reimburse 75% of the one-time registration fees for bar coding and 75%of the annual renewal fees incurred for the first three years.
  9. Energy Conservation support:
    • Under this scheme, enterprises having MSME Registration can avail a concession in electricity bills by making an application to Electricity board along with MSME Registration Certificate.
  10. Raw Material Assistance Scheme:
    • Under this scheme, Manufacturing MSME gets finance assistance for procurement of Raw Material ((both indigenous& imported) upto 90 Days.
  11. Priority Sector Lending:
    • Banks, by virtue of the directions issued by the Reserve Bank of India, have certain earmarked fundsthat have to mandatorily be given to MSMEs.
  12. Marketing Promotion Scheme:
    •  Multiple schemes available for MSMEs to avail both financial benefits and marketing assistance in order to encourage MSME to develop domestic markets .

Incentives available as per Atmanirbhar Package

  1. Emergency Credit Line:
    • Banks and NBFCs to provide Emergency Credit Line to MSMEs up to 20% of entire outstanding credit as on 29th Feb 2020 on the following terms:
    • Eligibility: Up to Rs. 25 crore of outstanding loan and up to Rs. 100 crore of turnover.
    • Tenure: 4 years with 1 year moratorium. • Interest: Interest rates to be capped.
    • Collateral : No Fresh Collateral Required.
    • Guarantee: 100% credit guarantee cover on Principal and Interest by the Govt. with no Guarantee fee.
    • Validity: Scheme available till 31st Oct 2020.
  2. Subordinate Debt:
    • Government will facilitate provision of Rs. 20,000 crore subordinate debt to non- performing assets or distressed MSMEs.
    • Government has further decided to provide support of Rs. 4,000 crore to Credit Guarantee Fund Trust For Micro And Small Enterprises (CGTMSE) which will give partial credit guarantee support to banks, to lend to MSMEs.
    • Promoters of the MSME will be given debt by banks, which will then be infused by promoter as equity in the Unit.
  3. Corpus for MSMEs - Equity Infusion:
    • Fund of Funds Scheme with Corpus of Rs. 10,000 crores will be set up which will be operated through mother and few daughter funds which implies that the government will provide equity funding for MSMEs with growth potential and viability.
    • Fund structure will help leverage Rs. 50,000 crores of funds at daughter funds level which will help MSME to grow in size and capacity.
  4. Disallowing global tenders:
    • To protect Indian MSMEs from competition from foreign companies, global tenders of up to Rs. 200 crore will not be allowed in government procurement tenders.
  5. Expediting payment of dues to MSMEs:
    • MSME receivables from Government and Central Public Sector Enterprises (CPSEs) to be released in 45 days.
  6. Relief under Insolvency and Bankruptcy Code (IBC):
    • Minimum threshold to initiate Insolvency Proceedings raised to Rs. 1 crore from Rs. 1 lakh.
    • Suspension of fresh initiation of Insolvency Proceedings up to one year depending upon the pandemic situation.
    • Empowering Central Government to exclude COVID 19 related debt from the definition of “default” under the Code for the purpose of triggering insolvency proceedings.
    • A special insolvency resolution framework for MSMEs under the Insolvency and Bankruptcy Code, 2016 to be notified.
  7. Relaxations under Companies Act, 2013:
    • Direct listing of securities by Indian public companies in permissible foreign jurisdictions.
    • Private companies which list Non Convertible Debentures on stock exchanges are not to be regarded as listed companies.
    • Lower penalties for all defaults for small Companies, one person companies and Start Ups.
    • Decriminalization of Companies Act violations involving minor technical and procedural defaults (shortcomings in CSR reporting, inadequacies in board report, filing defaults, delay in holding AGM).
    • Majority of the compoundable offences sections are to be shifted to internal adjudication mechanism (IAM) and powers of Regional Director for compounding to be enhanced to 58 Sections as compared to earlier 18 Sections. These Amendments will de-clog the criminal courts and NCLT.
    • 7 compoundable offences are altogether to be dropped and 5 are to be dealt with under alternative framework.

 

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