Govt relaxes norms for startups to avail tax benefits

The government today announced relaxation of norms for startups to avail tax incentives in a bid to promote budding entrepreneurs in the country.

As per the proposed changes announced in the Union Budget 2018-19, income tax benefits would be extended to startups that get incorporated up to April 1, 2021. This provision was earlier available only up to April, 2019.

Also, startups with turnover of under Rs 25 crore can avail the exemption over a period of seven previous years, commencing from the date of incorporation, it added.

The definition of eligible business has also been expanded to extend the benefit to startups that are "engaged in improvement of products or processes or services" or "a scalable business model with a high potential of employment generation or wealth creation".
 

Earlier, entrepreneurs involved in innovation, development or commercialisation of "new" products, processes and services driven by technology or intellectual property were the ones who were allowed to claim the benefits.

These changes "will take effect from April 1, 2018 and will accordingly apply in relation to the assessment year 2018-19 and subsequent assessment years", the Budget 2018-19 document said.

Welcoming the move, Nasscom President R Chandrasekhar said, "The extension of the Startup India scheme to March 2021 and rationalising the condition of turnover, will enable tens of thousands of start-ups to avail benefits under the Act".

Besides, evolving a distinct policy for hybrid instruments, which are suitable to attract foreign investments in several niche areas, will advantage start-ups and venture capital firms, he added.

Last year, the government had amended the definition of a startup, making it easier for the business ventures to avail of incentives and promote entrepreneurship under the Start-up India scheme, which was launched in 2016.

It had said an entity would be considered a start-up up to seven years from the date of its incorporation/ registration, taking into account the long gestation period in establishing new businesses. The period of consideration was five years previously.

While delivering his Budget speech today, Finance Minister Arun Jaitley said the government is committed to taking additional measures to further strengthen venture capital funds and angel investor ecosystem in the country.

Highlighting the role of fintech companies in growth of micro, small and medium enterprises (MSMEs), Jaitley said a group in Finance Ministry is examining the policy and the institutional development measures needed for creating the right environment for fintech companies to grow in India.

Indian Angel Network co-founder and Director Saurabh Srivastava welcomed the recognition of the contribution made by angels and VCs and "the promise of creating more enabling regulations in this area".

Srikanth Sundararajan, Partner at Ventureast, said the next level of details would need to be articulated soon with focus on helping startups attract investments, optimise their cash flow and scale.