The budget for the F.Y.2016-17, has been presented by the H’ble Finance Minister, Sh. Arun Jaitely Ji on 29th February, 2016. With a view to promote the Start-Up culture in India and to develop entrepreneurship, the F.M. has added a Special Provision under Section 80 IAC of the Income Tax Act, 1961 for the Start-Ups.
We are noting below the Frequently Asked Questions (FAQs) on Tax Benefits granted to Start-Up’s in the Budget, 2016:-
FAQ 1: What is an Eligible Business under the Income Tax Act, 1961?
Reply: As per explanation (i) to Section 80 IAC an “eligible business” means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.
FAQ 2: What are the conditions to be fulfilled by an Eligible Business to qualify for Benefits under Income Tax Act, 1961?
Reply : As per explanation (ii) “eligible Start-Up” means a company engaged in eligible business which fulfils the following conditions, namely:—
- it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;
- the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and
- it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government.’
FAQ 3: What are the Benefits granted to an Eligible Start-Up in the Budget of 2016?
Reply: Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, following benefits shall be granted:-
100% deduction of the profits and gains from the Eligible Business for 3 consecutive years (at the option of the assesses) out of first 5 Years from the year of incorporation;
FAQ 4: Will that mean Zero Taxation for Start-Ups during the 3 years window?
Reply: No, the assessee will be liable to Minimum Alternate Tax (MAT) under section 115 JB of the Income Tax Act, 1961. However, the credit of the MAT Tax can be utilized in subsequent year to reduce the peak tax rate of the business.
Further, any income other than the Profit & Gains of the Eligible Business accruing to the Start-Up shall be taxable.
FAQ 5: Are there any restrictions/ conditions imposed on the Start-Up?
Reply: The start-up must fulfils the following conditions, namely:-
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:
Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation 1 - For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—
a. such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;
b. such machinery or plant is imported into India;
c. no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.
Explanation 2 - Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.
The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1).
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