Budget Cheer For Startups: Three-Year Tax Holiday In First 7 Years

For carry forward of startups’ losses, the condition of continuous holding of 51% voting rights has been relaxed.

(Photo: iStock)

In a major boost to the startup industry and in response to a long-standing demand by entrepreneurs, the Union Budget altered the policy on tax concessions for startups. Finance Minister Arun Jaitley announced that firms incorporated after 31 March 2016 can avail a three-year tax holiday in the first seven years of setting up shop.

“The profit-linked deduction available to startups for now, being changed to three out of seven years from three out of five years,” Jaitley said.

For the purpose of carry forward of losses in startups, the condition of continuous holding of 51 percent of voting rights has also been relaxed. However, this decision is subject to the condition that the holding of the original promoter/promoters continues.

No Abolishment of Minimum Alternate Tax (MAT)

On the issue of removal of Minimum Alternate Tax (MAT), Jaitley acknowledged that there is strong demand for its abolition but said that it is not possible to reduce or remove MAT at present.

“To allow companies to use MAT credit in future years, I propose to allow carry forward of MAT up to a period of 15 years instead of 10 years at present," he added.

Ravi Gururaj, chairman of NASSCOM Product Council, said the measures were indicative of government’s support for the sector though any benefit would only accrue in the long term.

The government recognised the fact that (startup) founders have been requesting a longer period over which the three years of tax free regime could be availed... that is a good move... carry forward loses would continue when founder shareholder holding falls less than 50 percent. But these will only benefit startups that are built today and hence the outcome of these relaxations will be visible in the long-term.

Ravi Gururaj, Chairman, NASSCOM Product Council

(Read the original article on Bloomberg Quint)