Tax Department Rejects DPIIT Proposal To Extend Exemptions To Startups

The tax department has turned down a proposal by the Department for Promotion of Industry and Internal Trade (DPIIT) to extend the incorporation cut-off date for startups by five more years.  

The DPIIT had pitched the idea of extending the startup incorporation cut-off date to March 31, 2026, i.e. by five years as the current window expires from April 2021.

The government had already exempted DPIIT-recognised from income tax for a period of three years since incorporation under Section 80IAC of the Income Tax Act.

“The proposal was to revise the definition of eligible startups for tax benefits under Section 80 of the IT ACT but the tax department clearly told DPIIT, that the government policy is to remove all income tax exemptions and reduce income tax rates,” sources told CNBCTV18.

The tax department said, “In this connection, it may kindly be noted that the stated policy of the government is to remove all income-tax exemption and simultaneously reduce the tax rate. Accordingly, the Finance Act, 2016 grandfathered income-tax exemptions. In furtherance to this policy, the Taxation Laws (Amendment) Act, 2019 provided a concessional tax regime of 22% for all existing domestic companies which do not claim exemptions.”

Earlier, the government had allowed an exemption for the startups incorporated during the period from March 1, 2016 to March 31, 2019. However, this was extended at the request of DPIIT up to March 31, 2021, vide Finance Act, 2018.

To bolster the development of early-stage startups in India and provide them with a competitive platform, the government had exempted DPIIT-recognised from income tax for a period of three years since incorporation under Section 80IAC of the Income Tax Act. To avail of these benefits, a startup must get a certificate of eligibility from the Inter-Ministerial Board (IMB).

Under the Startup India programme launched in 2016, the government had formed a Fund of Funds for Startups (FFS) with a corpus of INR 10,000 Cr to be provided till 2025. 

Out of this corpus, which is currently managed by the Small Industries Development Bank of India (SIDBI), the government has released INR 1322.05 Cr until September 9, 2020. However, in February 2020, the government had committed INR 3123.20 Cr to 47 SEBI registered Alternative Investment Funds (AIFs).