Highlights
The Central Board of Direct Taxes had clarified that small startups with turnover up to Rs. 25 crores shall continue to get the promised tax holiday as stated in Section 80-IAC of the Income Tax Act, which furnishes deduction for 100% of income of an eligible startup for 3 years out of 7 years from the year of its incorporation.
CBDT furthermore clarified that all the startups recognized through DPIIT which fulfilled the conditions stated in the notification didn’t automatically become eligible for deduction under Section 80-IAC of the Act.
Only small start-ups with turnover up to Rs 25 crore to get a tax holiday
The tax department has stated that only small startups with a turnover of up to Rs 25 crore shall get tax holiday on fulfilling certain conditions.
It didn’t recognize the Rs 100 crore turnover definition of a small startup specified by the Department for Promotion of Industry and Internal Trade (DPIIT).
The Central Board of Direct Taxes (CBDT) has stated in a statement that since the purpose was to support the small startup, the turnover limit of Rs 25 crore was considered the rationale for granting profit linking deduction.
Startups under Section 80 IAC of the Income Tax Act are permitted 100% deduction of income for 3 years out of 7 years from the year of its incorporation.
The CBDT has explained that small startups with turnover up to Rs 25 crore shall continue to get the promised tax holiday as identified in Section 80-IAC of the Income Tax Act, 1961, which furnishes deduction for 100% of income for a registered and eligible startup for 3 years out of 7 years from the year of its incorporation.
The CBDT furthermore indicated that all startups recognized through DPIIT which fulfilled the conditions stated in the DPIIT notification didn’t automatically become eligible for deduction under Section 80-IAC of the Act.
CBDT furthermore explained that the startups are required to fulfill the conditions stated in Section 80-IAC for claiming this deduction. Consequently, the turnover limit for small startups who are claiming deduction would be determined through the provisions of Section 80-IAC of the Act and not from the DPIIT notification.
CBDT dismissed the misunderstanding created by media report claiming inconsistency that the I-T law was yet to reflect DPIIT's higher turnover limit of Rs 100 crore. CBDT stated that there was no inconsistency in DPIIT's notification dated 19th February 2019 and Section 80-IAC of the I.T. Act, 1961 as in para 3 of the said notification, it was clearly mentioned that a startup will be eligible towards applying for the certificate from the Inter-Ministerial Board of Certification for claiming deduction under Section 80-IAC of the Act, when the startup fulfills the conditions stated in sub-clause (i) and sub-clause (ii) of the Explanation of Section 80-IAC. Thus, the turnover threshold for eligibility for deduction under section 80-IAC of the Act, according to the DPIIT's notification is also Rs 25 crore.
It also specified that Section 80-IAC comprises a detailed definition of the eligible startup which, inter alia, furnishes that a startup which is involved in the eligible business would be eligible for deduction, if, it is incorporated on or after 1st April 2016; if its turnover doesn’t surpass Rs 25 crore in the year of deduction; and if it holds a certificate from the Inter-Ministerial Board of Certification.
It was clarified that this was the main reason as to why there was a varied difference between the number of startups recognized through the DPIIT as well as the startups eligible for deduction under section 80-IAC of the Act. It is relevant to mention that Section 80-IAC was introduced vide Finance Act, 2016 as an exception to the Government's specified policy of phasing out the profit-linked deduction for promoting small startups during their early year of operation.
Therefore, as the intent was to support the small startups, the turnover threshold of Rs 25 crore has been considered reasonable for granting profit linking deduction.
eStartIndia provides professional tech-based online legal services to our clients with the intention to simplify the legal compliance procedures and assist in all kinds registration, tax filing, GST filing, and any additional legal compliances and services related to the business in India.
Get free Consultation services from our Our Top-skilled Experts.
Author:
Leave a Comment
Previous Comments