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Every section of society was looking something for it in the budget. In the last two budgets, special emphasis was made on the startups by this government. I have written article covering the Tax Exemptions to Start-ups’’ vide Finance Act’ 2016 and 4 Income Tax Provisions benefiting Startups in Budget 2017’’

The eyes were all set in this budget also by Startup community what the Finance Minister will bring for them. However, there was not much to celebrate. Still, they didn’t go unnoticed. I have listed down budget proposals benefiting Startups.

1) Reduction in Corporate Tax Rate: In case of domestic company, the rate of income-tax shall be twenty-five percent of the total income if the total turnover or gross receipts of the previous year 2016-17 does not exceed two hundred and fifty crore rupees and in all other cases the rate of Income-tax shall be thirty percent of the total income.

Important Note: The benefit of the reduced rate will be available to domestic companies whose total turnover or gross receipt in the previous year 2016-17 does not exceed Rs. 250 crores.

However, A new cess named “Health and Education Cess is proposed to be levied @ 4% of income-tax including surcharge, if applicable, in place of existing cess of “Education Cess and “Secondary and Higher Education Cess on income-tax”.

Thus, effective tax rate comes to 26% i.e. 25% Tax Rate plus 4% Health and Education Cess on income-tax.

2) Extended Scope of Section 80-IAC providing Tax Exemption to Startups: The existing Section 80-IAC provides a deduction of 100% profits for 3 out of 7 years to eligible startup carrying on eligible business.

Proposed Amendments: In order to improve the effectiveness of the scheme for promoting startups in India, it is proposed to make following changes in the taxation regime for the startups:

Extended Condition of Date of Incorporation: Earlier the condition was that the startup should have been incorporated between 1st April’2016 to 31st March’2019 to claim the benefit.

Now, this benefit would also be available to startups incorporated on or after the 1st day of April 2019 but before the 1st day of April 2021.

Expanded Definition of Eligible Business:

Earlier the “eligible business” means a business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

Now, the definition of eligible business has been expanded to provide that the benefit would be available if it 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.

These are welcome changes for the Startup community. However, the issue of Angel Tax still went unaddressed in this budget. The clarification on that issue was very much required to help the startup ecosystem.

Author Bio

Tarun Kumar Madaan is a qualified Chartered Accountant with extensive expertise in taxation. He specialises in consulting services to startups and NGOs in India, helping them navigate complex tax laws. With years of experience as an advisor to various startups and NGOs, he has assisted them in their View Full Profile

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June 2024