Economy

Start-ups formed under limited liability partnerships to get three-year tax holiday

K R Srivats New Delhi | Updated on January 20, 2018 Published on May 05, 2016

The Finance Bill was passed after the Finance Minister Arun Jaitley moved 55 amendments to the Bill.

Lok Sabha passes Finance Bill post amendments

The Modi-led Government has given a boost to the start-up ecosystem in the country by allowing start-ups, set up as limited liability partnerships (LLPs), to be eligible for a three-year tax holiday. This forms part of the 55 amendments moved by Finance Minister Arun Jaitley to the Finance Bill 2016, which was passed by the Lok Sabha on Thursday.



With this, the three-stage Budget passage process has been completed in the Lower House.



Prior to this amendment covering LLPS, only start-ups set up as a company were eligible for the three-year tax holiday. Allowing a LLP structure would mean that start-ups could enjoy the flexibility of a partnership entity in terms of lesser compliance and at the same time not be required to fork out dividend distribution tax, say tax experts.



The other significant amendments include clarification that additional dividend tax of 10 per cent would get triggered once taxpayers’ dividend income (received from domestic company or companies) crosses the ₹10-lakh threshold. Hitherto, there was ambiguity whether this additional dividend tax provision applies on the total dividends received by a tax payer or whether this provision is to applied in relation to dividends received from each company per se, said Vikas Vasal, Partner Tax, KPMG in India.



According to the Budget proposal, the additional tax on dividends will have to be forked out by individuals, Hindu Undivided Families and firms receiving dividends in excess of ₹10 lakh.



Meanwhile, the Centre has through the amendments to the Finance Bill put into effect the withdrawal of provident fund related budget announcements. It has also set right an anomaly around capital gains on shares of unlisted companies.



Jaitley had, in his Budget speech, mentioned that the holding period for determining long-term capital gains has been reduced to 24 months from 36 months. This has been done by introducing a specific provision in the Finance Bill.



“Now long term capital gains arising in case of unlisted shares will enjoy concessional tax treatment, if such shares are held for twenty four months or more. This is a welcome move and will help in transactions relating to transfer of shares of unlisted companies,” Vasal told BusinessLine.



Agriculture tax



Earlier, replying to the discussions on the Bill in the Lok Sabha, Jaitley said that the Centre has no intent to impose income tax on agricultural income. Under the Constitution, the Centre has no powers to levy tax on agricultural income, Jaitley said.



Jaitley also advised States to refrain from imposing any taxes on agriculture incomes although the latter had the power to do so.



“Given the situation of our agriculture, it would be advisable not to levy any new taxes,” Jaitley told the Lower House during his reply that lasted for over an hour.



Srivats.kr@thehindu.co.in

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Published on May 05, 2016
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