Advance tax and MAT for Start up in Tax holiday year
This query is : Resolved
18 February 2021
Hi, Eligible start up can take the tax holiday for 3 out of 7 years. If in the first year, Start up has opted for tax holiday, then do they have to pay Advance tax and Minimum Alternate tax that year? Or they are exempt?
What is the process of applying for a tax holiday year?
What is the process of applying for a tax holiday year?
06 July 2024
For eligible startups opting for tax holiday under Section 80-IAC of the Income Tax Act, 1961, here are the key points to consider:
1. **Advance Tax:**
- Startups availing tax holiday are still required to pay Advance Tax if their estimated tax liability exceeds Rs. 10,000 in a financial year. Advance Tax is typically paid in installments through the year as per prescribed due dates.
2. **Minimum Alternate Tax (MAT):**
- MAT applies to startups availing tax holiday under Section 80-IAC. Even though they may not have regular tax liability due to the tax holiday, MAT is still applicable. MAT is computed on the "book profit" and is applicable if the tax payable as per regular provisions of the Income Tax Act is less than 18.5% of such book profit.
3. **Process of Applying for Tax Holiday:**
- Startups need to apply for tax holiday by filing Form No. 10-IE with the DPIIT (Department for Promotion of Industry and Internal Trade). This form should be filed online through the Startup India portal (https://www.startupindia.gov.in/).
- The application should include details such as the nature of business, date of incorporation, financial projections, and other relevant information.
- DPIIT evaluates the application based on criteria such as innovation, scalability, and potential for employment generation.
- Once approved, the startup can claim tax holiday benefits for up to 3 consecutive years out of 7 from the year of incorporation.
4. **Compliance:**
- Startups must comply with all statutory requirements, including filing of Income Tax Returns (ITR) and maintaining proper books of accounts.
- Even if no regular income tax is payable due to the tax holiday, startups need to compute MAT liability, if applicable, and comply with its payment and reporting requirements.
It's advisable to consult with a tax advisor or chartered accountant to ensure proper compliance with tax laws and to optimize tax benefits while availing the startup tax holiday.
1. **Advance Tax:**
- Startups availing tax holiday are still required to pay Advance Tax if their estimated tax liability exceeds Rs. 10,000 in a financial year. Advance Tax is typically paid in installments through the year as per prescribed due dates.
2. **Minimum Alternate Tax (MAT):**
- MAT applies to startups availing tax holiday under Section 80-IAC. Even though they may not have regular tax liability due to the tax holiday, MAT is still applicable. MAT is computed on the "book profit" and is applicable if the tax payable as per regular provisions of the Income Tax Act is less than 18.5% of such book profit.
3. **Process of Applying for Tax Holiday:**
- Startups need to apply for tax holiday by filing Form No. 10-IE with the DPIIT (Department for Promotion of Industry and Internal Trade). This form should be filed online through the Startup India portal (https://www.startupindia.gov.in/).
- The application should include details such as the nature of business, date of incorporation, financial projections, and other relevant information.
- DPIIT evaluates the application based on criteria such as innovation, scalability, and potential for employment generation.
- Once approved, the startup can claim tax holiday benefits for up to 3 consecutive years out of 7 from the year of incorporation.
4. **Compliance:**
- Startups must comply with all statutory requirements, including filing of Income Tax Returns (ITR) and maintaining proper books of accounts.
- Even if no regular income tax is payable due to the tax holiday, startups need to compute MAT liability, if applicable, and comply with its payment and reporting requirements.
It's advisable to consult with a tax advisor or chartered accountant to ensure proper compliance with tax laws and to optimize tax benefits while availing the startup tax holiday.
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