Compliance and regulatory requirements still remain a major challenge for start-up companies in India even as their numbers are on the rise.

Sandeep Agrawal, director, and co-founder of Teamlease Regtech, while highlighting some of the challenges said that there is still scope to refine the compliance requirements for the early-stage companies and improve the ease of doing business.

the service sector, an entrepreneur has to obtain registrations under five regulations, and to get additional benefits, they have to register as a startup and also under MSME Act. An entrepreneur who plans to invest in any manufacturing set-up, the registration requirements go up close to forty plus during the life cycle of business (including set up, pre-commissioning, post-commissioning, and post-production),” said Agrawal.

There is also a lack of awareness among early-stage entrepreneurs. “Lot of businesses do not get registered under the StartUp India scheme on account of lack of awareness. For example, although over 5.5 lakh businesses got registered in the last six years, only around 77,000 plus businesses got registered under StartUp India scheme,” he said.

Once registered, then comes the compliance requirement. “Although a company registered under StartUp India is exempt from inspections from labour laws and environmental laws, the company has to still comply with all the requirements of the law. A partnership firm in the service sector itself has to manage close to three compliances every four working days i.e., close to 175 compliance actions in a financial year. These requirements increase significantly for a manufacturing start-up,” said Agrawal.

Start-ups can avail of the benefit of tax exemption under Section 80-IAC of the Income Tax Act where they can claim 100 per cent of the profit for three consecutive assessment years beginning from the year in which the start-up was incorporated. However, Agrawal said there is a need to consider the practical aspects of whether such an exemption can actually be beneficial.

“The fact is that 90 per cent of start-ups fail during the first five years of operations. Additionally, several studies have highlighted that startups take an average of three to four years to achieve profitability. It is highly likely that the accumulated losses will be absorbed by the profits in the next couple of years and hence the benefit related to ‘tax exemption’ cannot be availed by most of the start-ups that survive during the first 5 years,” he said.