Startup relax tax regime

Tax Relaxation for

3 year Tax Holiday for startup

With a view to providing an impetus to startups and facilitate their growth in the initial phase of their business, it is proposed to provide deduction of 100% of the profits and gain derived by an  eligible startup from a business involving innovation development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.

Inserted a new section 80-IAC in the Income-tax Act relating to 100% profit deduction to eligible startups.

It is proposed to amend the Income-tax Act so as to provide a deduction of one hundred per cent of the profits and gains derived by an eligible start-up from a business involving innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.

The benefit of deduction of hundred per cent of the profit derived from such business can be availed by an eligible startups for three consecutive assessment years out of five years, at the option of the assessee, subject to incorporation before 1st day of April, 2019.

This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent assessment years.

Condition to avail 100% deduction

-Incorporation of company on or after 1st April, 2016 & before 31st March, 2019

-it is not formed by splitting up, or the reconstruction, of a business already in existence

-total turnover of its business does not exceed 25 crore rupees in any of the financial years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021

-Obtained certificate from the Inter-Ministerial Board of Certification


Royalty Income on Patent taxable @ 10% only

In order to encourage indigenous research & development activities and to make India a global R&D hub, the government has decided to put in place a concessional taxation regime for income from patents.

New Section inserted 115BBF under Income Tax Act,1961 where :-

Royalty income derived from patent developed and registered in India shall be taxable at the concessional rate of 10%.

No deduction allowed in respect of any expenditure incurred for earning income from royalty.

No MAT is applicable

Explanation.—For the purposes of this section,—
“developed” means the expenditure incurred by the assessee for any invention in respect of

which patent is granted under the Patents Act, 1970 (herein referred to as the Patents Act);

“eligible assessee” means a person resident in India and who is a patentee;

“royalty”, in respect of a patent, means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains” or consideration for sale of product manufactured with the use of patented process or the patented article for commercial use) for the—

(i) transfer of all or any rights (including the granting of a licence) in respect of a patent; or

(ii) imparting of any information concerning the working of, or the use of, a patent; or

(iii) use of any patent; or

(iv) rendering of any services in connection with the activities referred to in sub-clauses (i) to (iii);

No Capital Gain Tax if you invest in GOI specified startup funds

In order to promote the startup ecosystem in the country, it is envisaged in ‘startup india standup india’ to establish a fund of funds which intends to raise 10,000 crore in tranche of 2500 crore for 4 years to finance startups.
Keeping this view objective, GOI proposed to insert new section 54EE to provide exemption from capital gain tax if the long term capital gain proceeds are invested by an assessee in units of such specified fund (related to startups) , subject to lock in period of 3 years; failing to which exemption shall be withdrawn.
The maximum benefit can be avail upto Rs 50 lakhs by making investment in the specified fund units.

Period of Holding reduced to 2 year for relax capital gain tax

Period for getting benefit of long term capital gain regime in case of unlisted companies is proposed to be reduced from three to two years.

The above amendment boost the liquidity for investors to invest in startups

This will help to encourage VC, seed, angel investors to make investment in startups in india


Startup comes under section 54GB along with wider definition of “new assets”

Section 54GB allowed no tax on capital gain arises from sale of residential property (a house or a plot of land), if individual/ HUF utilises the net consideration for subscription in the equity shares of an SME company and such company invest the same funds in new assets excluding computers or computer software.

Now, if any individual sold his/her residential property to start his new startup business then capital gain earned shall be not taxable if he invest the net consideration received in its eligible startup company.

Secondly, computers or computers software form the core asset for technology driven startups, Accordingly government insert “computers & computer softwares” under the definition of “new assets” if company is technology driven startup holding certificate from Inter-Ministerial Board of Certification

Hence, this amendment will encourage individuals to invest their own tax free funds in technology driven startups.

To apply for eligible startup click here

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