Budget 2017: Start-ups can now avail of tax holiday in first seven years of existence

New Delhi: Finance minister Arun Jaitley on Wednesday altered the policy on tax concessions for start-ups and said firms incorporated after 31 March 2016 could now avail of a three-year tax holiday in the first seven years of their existence.

The rebate could earlier be availed in the first five years.

In his budget address, Jaitley said, “The profit-linked deduction available to start-ups for three years out of five years is now being changed to three years out of seven years.”

Further, for medium and small enterprises with an annual turnover of up to Rs50 crore, the budget announced a five percentage point rebate on corporate tax to 25% from the earlier 30%.

Also read: Union Budget 2017 live updates

The moves come in response to a series of presentations made by the Department of Industrial Policy and Promotion (DIPP), industry bodies like the National Association of Software and Services Companies, think tanks and start-ups to extend the tax concession period.

The change is, however, likely to provide only minor relief to start-ups. Stakeholders had requested either removal of the incorporation date criterion or increase in the concession period. Most start-ups are not able to achieve profitability in the first few years of existence.

Also read: Union Budget 2017: Key highlights

To avail the concession, start-ups (that meet the government’s definition of a start-up) have to present their application to the DIPP, which will then be reviewed by a three-member inter-ministerial panel comprising a joint secretary from DIPP and representatives from the Department of Biotechnology and Department of Science and Technology.

The panel meets once a month to decide on applications based on how innovative a start-up is.

Only eight start-ups were allowed to avail the tax rebate in 2016 out of 111 applications received, according to data on the Startup India website.

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