Start-up tax holiday may not have any fruitful impact

Our Bureau | | Updated on: Dec 06, 2021

The Modi government that has been talking start-ups in a big way for almost last four years gave negligible importance to the segment in the Budget.

There was just one mention of the term start-up in the entire speech read by the Finance Minister and that too was used only as an indirect reference.

However, the Finance Minister did offer extension of existing tax sops to start-ups for additional two years, which came as a respite for some.

As per the previous provisions, start-ups incorporated on or after April 1, 2016 but before April 1, 2019, could enjoy tax breaks for three consecutive assessment years out of the seven years at the option of the start-up. However, the start-up needs to have revenues of less than ₹25 crore a year.

The same benefits will now be extended to start-ups incorporated from April 1, 2019 to April 1, 2021, which means newer start-ups will also be able to take advantage of the scheme. “There is also positive news for start-up ecosystem as the benefit of deduction u/s 80-IAC is extended to start-ups incorporated even after April 1, 2019 but before April 1, 2021,” Mitesh Shah, Head of Finance, BookMyShow said.

However, experts feel that the measures are grossly insufficient and will benefit only a handful of start-ups.

“It wasn’t a big benefit in the first place as it is applicable to start-ups with less than ₹25 crore benefit. Young start-ups with under ₹25 crore of revenue are rarely profitable and thus the scheme does not have much impact,” said Harish HV, Partner – India Leadership team at Grant Thornton India.

That is not all, in order to be eligible for the tax benefit, start-ups will need to prove that they are engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation.

Start-ups, however, could face tough time convincing the tax authorities on their eligibility for the same.

Published on February 01, 2018
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