A government official has revealed that start-ups would get a 3-year tax holiday as an act to encourage their innovation and job creation. It is speculated that the government will be coming up with lenient policies to promote start-up enterprises. The benefit is applicable under Section 80IAC.
The government has reformed an inter-ministerial board to review applications from the companies to avail the benefit, tweeted Ramesh Abhishek, secretary at the department for the promotion of industry and internal trade (DPIIT).
Under Section 80IAC, any start-up that has a sales turnover of up to Rs.25 Crore can get a deduction on the total income from eligible operations while calculating taxable income. However, such a start-up must have begun its operation within 5 years from now, i.e. after April 2016.
Many start-ups are expected to receive the tax exemption. Since the move went live on the same day as the National Democratic Alliance leaders took their oath, it is expected to indicate a high priority in promoting start-ups and job creation.
According to the Income Tax Act, Section 80IAC is created for the benefit of businesses, a company or a limited liability partnership, which deal with innovation, development, or improvement of products, processes, services, or scalable business model. Such businesses must have a high potential to generate employment or wealth.
A certificate from the inter-ministerial board is necessary for businesses to get the benefits of the scheme. As a bonus, the rules were eased in February this year. Now, the start-ups are relieved regarding selling shares at their market value.
The relief from angel tax was extended to many start-ups that are eligible when the government decided to take those cases until their appeals were disposed of. Such a decision was made to encourage wealthy individuals to invest in start-ups who receive capital as a premium to their business model, even if their physical assets don’t match.
Abhishek also tweeted that about 541 start-ups have received angel tax exemption from the Central Board of Direct Taxes (CBDT). The other 36 applications were incomplete and did not qualify.