Budget 2017: Income Tax Provisions Benefiting Startups
Many Demands of startups are not met in this budget. Still, some benefits are given to startups
MAT is at present levied as an advance tax. It is calculated as percentage of book profits computed as per Section 115JB of Income Tax Act’1961. It was heavy demand from startups for abolition of MAT. However, Mr. Jaitley allowed to carry forward of MAT upto a period of 15 years instead of 10 years at present.
In my article “Tax Exemptions to Start-ups”, I have discussed in detail the tax exemption available to startups for 100% Profits for three consecutive assessment years subject to certain conditions prescribed in Section 80-IAC of Income Tax Act’1961. Profit linked deduction available to the start-ups for 3 years out of 5 years is being changed to 3 years out of 7 years.
It is an important step since in the early years of operations most of the startups incur losses. It is pertinent to note that Tax Exemption is available to only those startups which hold a certificate of an eligible business from the lnter-Ministerial Board of Certification. Detailed Procedure for recognition as Startup by DIPP has been discussed in my article “Startup India Campaign”
Section 79 of Income Tax Act’1961 prescribes that where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of the previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred.
For the purpose of carry forward of losses in respect of eligible start-ups as referred to in section 80-IAC, the condition of continuous holding of 51% of voting rights has been relaxed subject to the condition that the holding of the original promoter/promoters continues.
1. Extended period for carry forward of Minimum Alternative Tax :
MAT is at present levied as an advance tax. It is calculated as percentage of book profits computed as per Section 115JB of Income Tax Act’1961. It was heavy demand from startups for abolition of MAT. However, Mr. Jaitley allowed to carry forward of MAT upto a period of 15 years instead of 10 years at present.
2. Reduction in Corporate Tax Rate for Startups:
Finance Minister stated the fact that Medium and Small Enterprises occupy the bulk of economic activities and are also instrumental in providing maximum employment to people. In order to make MSME companies more viable and also to encourage firms to migrate to company format, he reduced the income tax for smaller companies with annual turnover upto `50 crore to 25% from existing rate of 30%.
3. Tax Exemptions vide Budget 2017 for Startups:
In my article “Tax Exemptions to Start-ups”, I have discussed in detail the tax exemption available to startups for 100% Profits for three consecutive assessment years subject to certain conditions prescribed in Section 80-IAC of Income Tax Act’1961. Profit linked deduction available to the start-ups for 3 years out of 5 years is being changed to 3 years out of 7 years.
It is an important step since in the early years of operations most of the startups incur losses. It is pertinent to note that Tax Exemption is available to only those startups which hold a certificate of an eligible business from the lnter-Ministerial Board of Certification. Detailed Procedure for recognition as Startup by DIPP has been discussed in my article “Startup India Campaign”
4. Carry forward of losses for despite change in voting rights of Startups:
Section 79 of Income Tax Act’1961 prescribes that where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year unless on the last day of the previous year the shares of the company carrying not less than fifty-one per cent of the voting power were beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per cent of the voting power on the last day of the year or years in which the loss was incurred.
For the purpose of carry forward of losses in respect of eligible start-ups as referred to in section 80-IAC, the condition of continuous holding of 51% of voting rights has been relaxed subject to the condition that the holding of the original promoter/promoters continues.
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