eMerg India

Tax incentives for Start-ups

With a view to provide motivation to start-ups and facilitate their growth in the initial phase of their business, it is proposed by the government to provide a deduction of 100% of the profits and gains derived by an eligible start-up from a business involving innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.

The benefit of 100% deduction of the profits derived from such business 3 out of 5 years shall be available to an eligible start-up which is setup before 01.04.2019 and after 01.04.2016. MAT will be applicable in such cases.

Further, in order to promote the start-up ecosystem in the country, it is envisaged in 'start-up India Action Plan' to establish a Fund of Funds which intends to raise Rs 2500 crores annually for four years to finance the start-ups.

These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.

With an to provide relief to those willing to setup a startup by selling a residential property to invest in the shares of such company, it has been proposed to amend section 54GB so as to provide that long term capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains are invested in subscription of shares of a company which qualifies to be an eligible start-up subject to the condition that the individual or HUF holds more than 50% shares of the company and such company utilizes the amount invested in shares to purchase new asset before due date of filing of return by the investor.

Capital gains will not be taxed if invested in regulated / notified Fund of Funds and by individuals in notified startups, in which they hold majority shares

Key announcements made during the Start-up India Standup India action plan

  • Start-ups will be exempted from paying incomefor the first 3 years
  • 80% rebate on filing a patent application.
  • Fast track mechanism for patent applications
  • Exemption of tax on capital gain. When person invests its own wealth, then they will get exemption from capital gains tax.
  • Mobile app will be launched on April 01, 2016 which will enable start-ups to get registered within a day.
  • The app will have a small application form for registration.
  • Web portal will be launched on April 01, 2016 for clearances, approvals, and registrations
  • Compliance regime based on self-certification
  • No inspection for 3 years of start-up businesses in respect of labour, environment law compliance post self-certification
  • Easier norms for start-ups to exit within 90 days. Bill will be introduced in the parliament.
  • Relaxed norms of public procurement for start-ups. There would be no requirement of turnover or experience.
  • Government will setup a fund with an initial corpus of Rs. 2, 500 crore and total corpus of Rs. 10,000 crore over a period of 4 years
  • A hub for startup India will be started with single point of contact.

Start-up Manufacturing Company

  • New manufacturing companies incorporated on or after March 2016, as proposed to be given an option to be taxed at 25%+ surcharge and cess.
  • New section introduced 54EE to provide exemption from capital gain tax if the long term capital gain proceeds are invested by an assesse in units of such specified funds, as may be notified by Central Government in this behalf, subject to the condition that the amount remains invested for 3 years failing which the exemption shall be withdrawn. Limit of investment 50 Lakhs. Effect from 1st April 2017.
eMerge India
eMERG India