Budget 2017 – 3 Year Tax Holiday For Startups Incorporated After April 1, 2016

2015 was all about ‘Start Up India, Stand Up India,’ followed by the formation of the INR 10,000 Cr  Fund of Funds. 2016 witnessed Prime Minister Narendra Modi announcing the way forward to Digital India and a big boost to the Startup community.

During this year’s budget the Finance Minister also made way for new Tax exemptions for startups.

As per the new announcements in the budget, profit-linked deductions for startups were changed. Finance Minister Arun Jaitley stated that firms that were incorporated after March 31,2016 could avail a tax holiday for three out of seven years, from the date of incorporation. Earlier, the limit was for three out of five years.

Prior to the budget, there was a demand for increasing the bracket to seven. The startup community also demanded a change in the eligibility date – i.e. startups that were incorporated before April 1, 2016. However, both these demands were ignored in the Budget address.

In order to avail these benefits, startups should be incorporated between  April 1, 2016 and 31st March 2019. A startup must also get a Certificate of Eligibility from the Inter-Ministerial Board of DIPP.

However, the increase in the window for availing tax benefit will give more time to a startup to be at a position in its business cycle to attain profitability.

As per the recent status report of the Startup India Action Plan, 1835 applications were received for recognition, of which 713 had the required documents and were recognised as Startups by DIPP. Out of the total applications received, only 146 applications could be considered for tax benefits as they were incorporated after April 1, 2016.

Of the 146 considered by the IMB (an Inter-Ministerial Board set up by DIPP) only 10 have received eligibility certificate for tax benefits under the scheme.