- Date : 02/02/2023
- Read: 3 mins
A look at the start-up income tax benefits announced in budget 2023
The government has continued to encourage start-ups incorporated in India. Apart from playing a nurturing role through initiatives like Start Up India, the government had rolled out various tax incentives specifically for Indian start-ups. One of the primary criteria for availing of these tax benefits is the date of incorporation of the start-up.
Budget Announcements for Start-ups
As a part of the budget announcements made on 1 February 2023 Finance Minister Ms Nirmala Sitharaman announced that the date of incorporation cut-off of start-ups for availing of the tax benefits has been extended. The date of incorporation is extended by a year from 31 March 2023 to 31 March 2024.
The Finance Minister further proposed that the benefit of carrying forward losses due to change in start-up shareholding be extended from seven years of incorporation to ten years.
Who is a Start-up?
A start-up is an entity that works in the field of development and makes products through technology and innovation for the benefit of society. It should have the potential to create employment opportunities and wealth. Such entities cannot be formed through the split or reconstruction of an existing business.
The entity can be a private limited company, a registered partnership or a limited liability partnership. The annual turnover of the entity should not exceed Rs 100 crores in any of the previous financial years. The entity remains a start-up for ten years from its date of incorporation.
These criteria are as per the Department for promotion of industry and internal trade (DPIIT) requirements.
Start-up Tax Benefits
Following are the tax benefits available to start-ups:
Under section 80IAC, start-ups registered as a private limited company or limited liability partnership, incorporated after 1 April 2016 and on or before 31 March 2024 is eligible for a 100% tax rebate on profits for three years. These three years can be selected from the seven consecutive years after incorporation. However, the annual turnover of the start-up cannot be more than Rs 25 crores in any of the financial years in which the rebate is claimed. Only recognised start-ups registered as private limited companies or limited liability partnerships are eligible for tax exemption under section 80IAC.
A Minimum Alternate Tax (MAT) of 15% along with surcharge and cess is applicable for start-ups. This applicability is waived off in the case of start-ups that fail to make any profit. This benefit is available for the first five years of the start-up’s existence.
DPIIT-recognised start-ups can apply for tax exemption under section 56, which is also known as angel tax. Besides, the total amount of paid-up share capital and share premium after the issue of the share must not exceed Rs 25 crores.
Also Read: Union budget key highlights 2023-24
As more and more start-ups continue to be formed in India, it is a welcome step by the government to extend the tax benefits for start-ups formed till the end of the financial year.