PM had launched the ‘Start-Up movement’ by unveiling the action plan to boost the start-up culture and encourage entrepreneurship in India. Apart from measures like simplification of registration process, cheaper patent registration, faster exit norms etc., PM’s action plan also included other tax benefits for startups which are explained below:
1. Tax Free Zone for 3 years out of 7 years
- Startups can now enjoy 100% deduction of profits for a period of three years out of seven years for startups set up between April 2016 and March 2019.
- Should be engaged in a business involving development, deployment, innovation or commercialization of new products, processes or services driven by technology or intellectual property and this tax sop is only available to those startups which are recognized by the DIPP (Department of Industrial Policy & Promotion).
2. Small Bag of Goodies for Manufacturing Companies
- In case of newly setup companies engaged solely in the manufacture or production of article or thing, a reduced tax rate of 25% would apply. In order to enjoy the exemption of reduced tax rate, the company should be registered on or after 1st March 2016.
- Also, attempts have been made to curb excise duties on various products to encourage entrepreneurship in India and to motivate manufacturing startups from the initial years of establishment of production unit to post production phase.
3. Other Key Tax Benefits For Startups Announced In Budget 2016 & 2017
- Support and escalate Scheduled Caste/Scheduled Tribe entrepreneurs whereby Rs 500 crore earmarked for SC/ST and women entrepreneurs under the Startup India scheme.
- The condition of continuous holding of 51% of voting rights has been relaxed in respect of Carry forward of Losses subject to the condition that the holding of the original promoter/promoters continues.
- Capital gains will not be taxed on investments in regulated fund of funds for startups.
Investment in ‘computer or computer software’ (including an accounting software) shall also be considered as purchase of ‘new assets’ for this purpose in order to promote technology driven Startups.
- Relief has been provided to those living in rented houses by raising the 80GG deduction from Rs 24,000 to Rs 60,000 in view of the fact that entrepreneurs of the startup community hail from different places of the country to move to new business locations to yield value, this will be a huge motion to them while planning their personal taxes.
- Setting up of a fund to raise Rs 2,500 crore annually for four years to finance startups.
Carry forward of MAT further to 15 years from the present period of ten years. This provides the companies an additional five years before they become liable to pay their MAT.
Reduction of Income Tax for those companies with an annual turnover of upto Rs 50 crore to 25% from the current applicable rate of 30%.
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