Proposed Extension of date of incorporation for eligible start up for exemption and for investment in eligible start-up under Finance Bill 2021

The existing provisions of the section 80-IAC of the Act, inter alia, provides for a deduction of an amount equal to hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee. This is subject to the condition that the total turnover of its business does not exceed one hundred crore rupees. The eligible start-up is required to be incorporated on or after 1st day of April, 2016 but before 1st day of April 2021.

The existing provisions of the section 54GB of the Act, inter alia, provide for exemption of capital gain which arises from the transfer of a long-term capital asset, being a residential property (a house or a plot of land), owned by the eligible assessee. The assessee is required to utilise the net consideration for subscription in the equity shares of an eligible start-up, before the due date of furnishing of return of income under sub-section (1) of section 139 of the Act. The eligible start-up is required to utilise this amount for purchase of new asset within one year from the date of subscription in equity shares by the assessee. Further, it has been provided that benefit is available only when the residential property is transferred on or before 31st March, 2021.

In order to help such eligible start-up and help investment in them,-

(i) it is proposed to amend the provisions of section 80-IAC of the Act to extend the outer date of incorporation to before 1st April, 2022; and

(ii) it is proposed to amend the provisions of section 54GB of the Act to extend the outer date of transfer of residential property from 31st March 2021 to 31st March 2022.

These amendments will take effect from 1st April, 2021.

[Clauses 19 and 25]

Text of the Relevant Clause of the Finance Bill 2021

Clause 19 of the Bill seeks to amend section 54GB of the Income-tax Act relating to capital gain on transfer of residential property not to be charged in certain cases.

The provisions of the said section, inter alia, provide for roll over benefit in respect of capital gain arising from the transfer of a long-term capital asset, being a residential property owned by the eligible assessee. In order to get benefit of this provision, the assessee is required to utilise the net consideration for subscription in the equity shares of an eligible company before the due date of filing of the return of income. Currently the benefit of this section is only available for investment in the equity shares of eligible start-ups upto 31st March 2021.

It is proposed to amend the proviso to sub-section (5) of the said section so as to provide that in case of an eligible start-up, the capital gains arising from transfer of residential property made upto 31st March, 2022 shall be eligible for the benefit under the said section.

This amendment will take effect from 1st April, 2021.

Clause 25 of the Bill seeks to amend section 80-IAC of the Income-tax Act relating to special provision in respect of specified business.

The existing provisions of the section 80-IAC of the said Act, inter alia, provide for a deduction of an amount equal to one hundred per cent. of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years at the option of the assessee subject to the condition that the total turnover of its business does not exceed one hundred crore rupees for an eligible start-up incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2021.

It is proposed to extend the period of incorporation of such eligible start-ups till 1st day of April, 2022.

This amendment will take effect from the 1st April, 2021.

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