Time period extended for 100% tax benefit for Startups

In January 2016 the government launched the ‘Startup India’ initiative. Many benefits including tax benefits were proposed for businesses recognized under Startup India.

In his Budget 2017, Finance Minister Arun Jaitley stated that the thrust of his tax proposal policy is to stimulate growth among others. He has focused on SMEs and startups stating these make up a large portion of the Indian economy and employ the maximum people. In order to help Indian economy to grow and to promote startups and Make In India initiative, he has introduced many changes which will benefit startups.

One of the main benefit to startups is 100% tax deduction which government had introduced last year (under section 80IAC of the income tax act).

In Budget 2017, FM has made more changes to this section to make it even more beneficial for startups.

Important features of Section 80IAC (updated as per Budget 2017)

100% of the profits will be exempted from tax for 3 out of 7 years provided the following conditions are satisfied:

  1. It is an eligible startup
    • It has not been formed by splitting up, or the reconstruction, of a business already in existence.
    • It is not formed by the transfer of any machinery or plant previously used for any purpose (Maximum 20% of total machinery can be second-hand)
  2. It has eligible business i.e., there is innovation
  3. It is incorporated on or after 1.4.2016 but before 1.4.2019
  4. Annual turnover is less than 25 crores for 5 years, i.e. from 1st April, 2016 to 31st March, 2021.
  5. The original promoters must be on board. But the condition of continuous holding of 51% of shares by founders has been relaxed by Budget 2017
  6. The startup holds a certificate from Inter-Ministerial Board (IMB)

Note: Section 80IAC deduction is allowed for for business or professional income only.


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A modified version of this article was published on Yahoo! Finance here.

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