In a major boost to the startup industry and in response to a long-standing demand by entrepreneurs, the Union Budget altered the policy on tax concessions for startups. Finance Minister Arun Jaitley announced that firms incorporated after March 31, 2016 can avail a three-year tax holiday in the first seven years of setting up shop.
“The profit-linked deduction available to startups for now being changed to three out of seven years from three out of five years,” Jaitley said.
For the purpose of carry forward of losses in startups, the condition of continuous holding of 51 percent of voting rights has also been relaxed. However, this decision is subject to the condition that the holding of the original promoter/promoters continues.
On the issue of removal of Minimum Alternate Tax (MAT), Jaitley acknowledged that there is strong demand for its abolition but said that it is not possible to reduce or remove MAT at present.
“To allow companies to use MAT credit in future years, I propose to allow carry forward of MAT up to a period of 15 years instead of 10 years at present," he added.
Ravi Gururaj, chairman of NASSCOM Product Council, said the measures were indicative of government's support for the sector though any benefit would only accrue in the long term.
The government recognised the fact that (startup) founders have been requesting for a longer period over which the three years of tax free regime could be availed and they have extended that and that is the good move. Also recognition, that carry forward loses would continue when founder shareholder holding falls less than 50 percent. But these will only benefit impacts startups that are built today and hence the outcome of these relaxations will be visible in long term.”Ravi Gururaj, Chairman, NASSCOM Product Council
Besides the minister also proposed to reduce income tax for smaller companies, with annual turnover upto Rs 50 crore, to 25 percent to encourage to migrate to company format and will make the MSME sector more competitive.
“As per data of Assessment Year 2015-16, there are 6.94 lakh companies filing returns of which 6.67 lakh companies fall in this category and, therefore, percentage-wise 96 percent of companies will get this benefit of lower taxation,” Jaitley added.
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.
