Various tax exemptions
have been given to Startups in the recent past -
Following direct tax incentives were provided in Income-tax Act,1961
(‘the Act’) to promote Start-ups through Finance Act,2016:
· Introduction of new section 54EE in Income-tax Act, 1961 to exempt
investment of long term capital gains by an investor in a fund notified
by Central Government.
· Amendment of section 54GB to provide exemption of capital gains
arising out of sale of residential property, on investing the same in
shares of Start-up company.
· Introduction of new section 80-IAC to provide 100% deduction for three
consecutive years out of five years, to profits of start-ups which are
approved by Inter-Ministerial Board of Certification notified by DIPP.
To prevent incidence of “Angel Tax” on angel investors investing in
approved start-ups, CBDT vide Notification No.45/2016 dated June 14,2016
notified that Angel investors funding to approved start-ups shall be
exempt from incidence of tax under section 56(2)(viib).
Further, vide Finance Act,2017, following benefits have been provided to
· Amendment of section 79 of the Act to provide that in the case of a
company being an eligible start-up, loss shall be carried forward and
set off against the income of the previous year, even if a change in
shareholding has taken place in a previous year subject to all the
shareholders of such company on the last day of the year or years in
which the loss was incurred, continuing to hold shares on the last day
of such previous year. The restriction of fifty one percent of
shareholding of company to remain unchanged in order to carry forward
and set-off the loss of earlier years has therefore been relaxed in the
case of start-ups.
· Amendment to provide that deduction under section 80-IAC can be
claimed by an eligible start-up for any three consecutive assessment
years out of seven years beginning from the year in which such eligible
start-up is incorporated as against three years out of five years
provided by Finance Act, 2016.
The above exemptions would encourage seed-capital investment in
Startups, facilitate their growth and meet the working capital
requirements during the initial years of operation. Further, they would
also promote investments into Start-ups by mobilizing the capital gains
arising from sale of capital assets.
This information was given by the Commerce and Industry Minister Smt.
NirmalaSitharaman in a written reply in Rajya Sabha today.