Despite the fact that there are more start-up businesses in India than ever before, compliance and regulatory requirements still pose a significant problem.
While pointing out some of the difficulties, Sandeep Agrawal, director and co-founder of Teamlease Regtech, stated that there is still need to improve the ease of doing business and the compliance standards for early-stage enterprises.
In order to receive additional benefits, an entrepreneur must register as a startup and under the MSME Act in addition to obtaining registrations under five rules. The registration requirements increase by about forty during the life cycle of a business (including set up, pre-commissioning, post-commissioning, and post-production), according to Agrawal, for an entrepreneur who wishes to invest in any manufacturing setup.
Early-stage entrepreneurs also exhibit a lack of awareness. Due to a lack of awareness, many businesses fail to register under the StartUp India scheme. For instance, only about 77,000 or so enterprises registered under the StartUp India programme despite the fact that over 5.5 lakh businesses were registered in the previous six years, he said.
The requirement for compliance follows registration. “A firm registered under StartUp India is immune from environmental and labour law inspections, but the company must still abide by all legal requirements. In the service industry, a partnership business must manage nearly three compliances every four working days, or nearly 175 compliance actions in a fiscal year. For a manufacturing start-up, these requirements rise dramatically, according to Agrawal.
Under Section 80-IAC of the Income Tax Act, start-ups are eligible for a tax exemption that allows them to deduct 100% of their profits for three consecutive assessment years commencing with the year in which they were formed. Agrawal said that it is important to take into account how useful a certain exemption might truly be in practise.
“In actuality, 90% of new businesses fail during the first five years of existence. Additionally, a number of studies have shown that it typically takes businesses three to four years to become profitable. The benefit associated to “tax exemption” cannot be used by the majority of start-ups that survive over the first five years because it is extremely likely that the accumulated losses will be offset by the earnings in the upcoming years.