(iStock)
(iStock)

Government makes it easier for startups to claim three-year tax holiday

  • The government reconstitutes an inter-ministerial board to review applications from startups for tax relief
  • The benefit under section 80IAC allows startups with up to 25 crore in sales to deduct their entire income from eligible operations while calculating taxable income

New Delhi: Startups will now find it easier to claim a three-year tax holiday meant to promote innovation and job creation with the government changing the rules for seeking this benefit, a government official said.

Ramesh Abhishek, secretary, Department for Promotion of Industry and Internal Trade (DPIIT), said in a tweet on Thursday that the government had reconstituted an inter-ministerial board to review applications from startups for tax relief. The benefit under section 80IAC allows startups with up to 25 crore in sales to deduct their entire income from eligible operations while calculating taxable income. This benefit is available for startups incorporated within five years starting April 2016.

"Reconstituted inter-ministerial board shall soon review all applications of eligible startups for tax exemption under section 80 IAC of the Income Tax Act. We have also revised norms for such exemption. Large number of startups will now get covered, including those not accepted previously," Abhishek said in his tweet. The move, which comes on the day the National Democratic Alliance leaders are set to take oath, indicates the high priority the coalition places on promoting startups and job creation.

The tax sop under section 80 IAC is meant for businesses, whether a company or a limited liability partnership, which is engaged in "innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation," as per the Income Tax Act. These entities need a certification from the inter-ministerial board to avail of the facility, which has now been eased. Further details of the decision were not available at the time of publishing.

In February, the government eased rules for granting relief to startups facing tax demands for selling shares at a premium to their fair market value. It also expanded eligibility of companies that could benefit from the move. The relief from the so-called angel tax was also extended to all eligible startups retrospectively, with the government deciding not to pursue such cases until their appeals were disposed off. That decision was aimed at encouraging wealthy individuals to invest in startups that receive capital at a premium on account of their innovative business model although the valuation is not justified by the physical assets they hold.

In a separate tweet, Abhishek said 541 startups had been granted angel tax exemption by the Central Board of Direct Taxes (CBDT) so far. "Rest 36 applications were incomplete, @startupindia team is working with concerned startups to address their deficiencies," said Abhishek in his tweet.

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