The government of India has taken several moves to boost the Startup ecosystem in India since 16 January’2016 (launching of the Startup India Campaign). On 1st of Feb, this year when Shri Arun Jaitley (finance minister of India) was set to present the budget, the Startup Industry was hoping for many incentives from the government of India. Most of the Demands of Startups industry have not been met in this budget 17-18. Still, few Income Tax Benefits for Startup community were provided in this budget.
The summarized Income Tax Benefits for Startup community in this budget:
The Period to carry forward of MAT credit (Minimum Alternative Tax) extended:
MAT (Minimum Alternative Tax) is at present levied on all companies including startups as an advance tax. MAT is calculated as the percentage (18.5 percent plus surcharge) of book profits as per Section 115JB of IT Act’1961.
It was the long outstanding demand by the startups industry to an abolition of MAT on them. However, Mr. Jaitley (Finance Minister) allowed carrying forward of MAT credit up to a period of 15 years rather than 10 years at present.
Reduction in Corporate Tax Rate for Startups:
Finance Minister Shri Arun Jaitley stated the that Small and Medium Enterprises are the major chunk in Indian economic activities and are also an important source of providing employment to people of India. In order to encourage and make MSME companies more viable and to migrate from firm to company format, the finance minister reduces the income tax for smaller companies from 30% to 25% with annual turnover up to `50 crore.
Tax Exemptions (Tax Holidays) for Startups:
100% Profits exempt for three consecutive years’ subject to some prescribed conditions in Section 80-IAC of IT Act’1961. Profit-linked exemptions available for the startups which were for 3 years out of 5 years has been changed to 3 years out of 7 years.
Despite the change in voting rights the Startups Can Carry forward losses:
Section 79 of IT Act suggests that where a change in shareholding in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss suffered in any year preceding the previous year shall be eligible to be carried forwarded and set off against the previous year income unless on the last day of the previous year (on the date of settling the books of accounts) the shares of the company carrying not less than 51% of the whole voting power were beneficially detained by a person or persons who are beneficially detained shares of the company holding not less than 51% of the whole voting power on the last day of the previous year or the years in which the loss was incurred.
In his announcement made by the Finance Minister Shri Arun Jaitley has given some relaxation to the startups. The condition of a continuous holding of fifty-one percent of voting rights has been relaxed subject to the conditions.
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