Cabinet Approved Fund of Funds for Startups

The Fund of Funds for Startups (FFS) was approved by the Cabinet and established by Department for Promotion of Industry and Internal Trade(DPIIT) in June 2016 with a corpus of Rs 10,000 crore to provide a much-needed boost to the Indian startup ecosystem and enable access to domestic capital. The objectives of Fund of Funds include accelerating innovation-driven entrepreneurship and business creation, mobilizing larger equity-like resources for startups.

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Narendra Modi

Under Startup India Initiative recognized startups have been exempted under several sections of IT Act.  Details are enclosed at Annexure-I.

The Fund of Funds for Startups (FFS) was approved by the Cabinet and established by Department for Promotion of Industry and Internal Trade(DPIIT) in June 2016 with a corpus of Rs 10,000 crore to provide a much-needed boost to the Indian startup ecosystem and enable access to domestic capital. The objectives of Fund of Funds include accelerating innovation-driven entrepreneurship and business creation, mobilizing larger equity-like resources for startups. The Fund of Funds does not directly invest in start-ups but provides capital to SEBI-registered Alternate Investment Funds (AIFs), known as daughter funds, who in turn invest money in growing Indian startups through equity and equity-linked instruments. SIDBI has been given the mandate of managing this Fund through selection of suitable daughter funds and overseeing the disbursal of committed capital.

As on 21st November, 2019, SIDBI has committed Rs 3123.20 Cr. to 47 SEBI registered Alternative Investment Funds (AIFs). These funds have raised a corpus fund of Rs. 25,728 Crore. Rs. 695.94 Crore have been drawn from the Fund of Funds for start-ups.  Rs. 2,669.83 Crore have been invested into 279 startups.  There is no provision for State/UT-wise distribution of funds under FFS.

2,85,890 jobs are reported by 23,657 DPIIT recognized start-ups, as on 4th December 2019.  The breakup of the number of start-ups with number of employees State/UT-wise is attached at Annexure-II.

 

ANNEXURE-I

 

  1. Income Tax Exemption on profits under Section 80-IAC of Income Tax (IT) Act.

The Inter-Ministerial Board of Certification is a Board set up by Department for Promotion of Industry and Internal Trade (DPIIT) which validates Startups for granting tax related benefits. A DPIIT recognized Startup is eligible to apply to the Inter-Ministerial Board for full deduction on the profits and gains from business (exemption under Section 80IAC of the Income Tax Act) provided the following conditions are fulfilled. The entity should be

      • A private limited company or a limited liability partnership,
      • Incorporated on or after 1st April 2016 but before 1st April 2021, and
      • Products or services or processes are undifferentiated, have potential for commercialization and have significant incremental value for customers or workflow

 

The deduction is for any three consecutive years out of seven years from the year of incorporation of start-up.

Till date, 38 Inter-Ministerial Board meetings have taken place and 247 startups have been granted exemption under Section 80IAC of the IT Act

  1. Tax Exemption on Investments above Fair Market Value.
  2. DPIIT Recognized Startups are exempt from tax under Section 56(2)(viib) of the Income Tax Act when such a Startup receives any consideration for issue of shares which exceeds the Fair Market Value of such shares
  3. The startup has to file a duly signed declaration in Form 2 to DPIIT {as per notification G.S.R. 127 (E)} to claim the exemption from the provisions of Section 56(2)(viib) of the Income Tax Act

With regard to declarations received from entities, furnished in Form 2, intimation regarding receipt of Declaration in Form 2 has been mailed in the cases of 1,729 entities as on 4th of December 2019

  1. 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 notified by Central Government. The maximum amount that can be invested is Rs. 50 lakh

  1. Amendment in Section 54GB of the 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

  1. The condition of minimum holding of 50% of share capital or voting rights in the start-up relaxed to 25%
  2. The period of extension of capital gains arising from for sale of residential property for investment in start-ups has been extended up to 31st March 2021.
  3. Amendment in Section 79 of Income Tax Act.

Startups can carry forward their losses on satisfaction of any one of the following two conditions:

  1. Continuity of 51% shareholding/voting power or
  2. Continuity of 100% of original shareholders

 

ANNEXURE-II

 

State/UT Number of Startups Number of Employees (Self-Reported)
Maharashtra 4443 52847
Karnataka 3444 46462
Delhi 3001 34489
Uttar Pradesh 1926 20193
Haryana 1335 19446
Telangana 1320 18725
Gujarat 1238 18087
Tamil Nadu 1207 15506
Kerala 1072 9776
West Bengal 710 7647
Rajasthan 680 8368
Madhya Pradesh 679 7467
Odisha 423 5005
Andhra Pradesh 396 4325
Bihar 334 3228
Chhattisgarh 310 2838
Jharkhand 198 1330
Uttarakhand 194 1814
Punjab 177 2100
Assam 155 1910
Jammu and Kashmir 99 935
Goa 93 796
Chandigarh 80 876
Himachal Pradesh 50 626
Pondicherry 26 298
Manipur 15 124
Andaman and Nicobar Islands 10 64
Tripura 10 303
Meghalaya 8 41
Nagaland 7 41
Dadra and Nagar Haveli 5 134
Arunachal Pradesh 4 22
Mizoram 3 50
Sikkim 3 12
Daman and Diu 2 5

 

This information was given by the Minister of Commerce and Industry, Piyush Goyal, in a written reply in the Lok Sabha

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