In the Union Budget for 2023-24, finance minister Nirmala Sitharaman said the date of incorporation for startups to avail tax benefits has been extended by a year to March 31, 2024, and that the tax incentives will be applicable on startups in the first 10 years of incorporation, up from seven years earlier.
However, for startups to be eligible for availing the tax incentives, their turnover should be less than Rs 100 crore in any of the previous financial years.
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Fiscal measures announced in the budget apply to less than 1% of the DPIIT-registered startups, said Siddharth Pai, founding partner of early-stage investment firm 3one4 Capital.
“There was no mention of the rationalisation of the Inter-Ministerial Board regime, which is required to allow startups to avail of any of the benefits under the Income Tax Act, 1961,” he said.
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“(There was) no change in the Esop measures either – a longstanding ask of the Indian startup ecosystem,” Pai said. “Measures to curb the flipping of startups, which was mentioned in the Economic Survey, have also not been brought out.”Pai is also co-chair of the regulatory affairs committee at Indian Venture and Alternate Capital Association (IVCA).
The tax holiday was announced for the first time in the budget for 2017-18, where the government had said that startups incorporated after March 31, 2016, could avail tax holiday for a period of three years in the first seven years of their incorporation.
Under this, startups are allowed to carry forward their losses incurred during the said period to the next financial year, when they can set the losses off against income.
Tax experts said the move to give startups more time to avail these incentives is timely given the current environment, where startups are trying to reduce costs.
“Startups are not profitable from day one, and in the current business environment, where layoffs are happening, the path to profitability will be extended,” said Amit Maheshwari, partner at tax and consulting firm AKM Global. “The proposed amendment would give them a longer runway to utilise these losses”.
Additionally, the Budget allocated Rs 30 crore in 2023-24 for the Startup India programme, down from Rs 44.29 crore as per revised estimates of 2022-23. The budget estimate for 2022-23 was Rs 50 crore.