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Eligible start-ups can now avail of their three-year tax holiday in a block of seven years instead of five years, which will give them more time to take advantage of the benefit.
“The profit-linked deduction available to the start-ups for three years out of five years is being changed to three years out of seven years,” Finance Minister Arun Jaitley said.
The increase in window for availing of tax benefit will give start-ups more time to reach a stage when they start earning profits before exercising their option for exemption. Start-ups had been complaining that they could not fully use the tax holiday benefit as very few of them started earning profits in the initial years.
The other demands from start-ups — which included increasing the number of years of income tax exemption from three years to seven years and pushing back the qualification date before April 1, 2016 — have been largely ignored.
Holding conditionThe condition of continuous holding of 51 per cent of voting rights for a start-up for ‘carry forward of losses’, has been relaxed. Carry forward of losses will now be allowed subject to the condition that the original promoter/promoters continue the holding, Jaitley said.
“The carry forward of losses provision will encourage start-ups to take risks. Despite the fact that they are not exempt from MAT, the carry forward limit of 15 years, as against 10 years, will boost the hopes and operations of start-up,” said Rajat Tandon, Chairman, Indian Venture Capital Association.
Of the 1,425 applications received by the DIPP since the start-up policy was operationalised last year, 111 applications were considered for tax benefits as only these were incorporated after April 1, 2016 and eight start-ups were approved for getting tax benefits.
As many as 522 had the required documents and have been recognised as start-ups.
These will be eligible for other benefits such as exemption from various compliances, assistance to file IPR applications and relaxation in norms of government procurement reserved for small enterprises.
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