Budget 2021: Startups get tax holiday, capital gains exemption by one more year
The extension on tax holiday and capital gains exemption by one more year in the Union Budget has come as a relief for the Indian startup ecosystem.
The Union Budget for 2021-22 has further boosted the Indian startup ecosystem by announcing tax incentives for startups and an extension in capital gains exemption by one year.
Union Finance Minister Nirmala Sitharaman said the government has proposed to extend the eligibility of tax holiday for startups by another year. Further, the capital gains exemption for startups has also been extended by another year.
"In order to incentivise startups in the country, I propose to extend the eligibility for claiming tax holiday for startups by one more year - till March 31, 2022. Further, in order to incentivise funding of the startups, I propose to extend the capital gains exemption for investment in startups by one more year - till March 31, 2022," the Finance Minister said.
This should come as a relief for startups as they were looking for certain support from the Union Budget after the COVID shock of March 2020 devastated most industries, including the startup ecosystem.
The government, under the Startup Up India plan, had announced a tax holiday for startups in a block of seven years. Under the current regulations, a startup incorporated after April 1, 2016, is eligible for getting 100 percent tax rebate on profit for a period of three years in a block of seven years, provided the annual turnover does not exceed Rs 25 crore in any financial year.
This is expected to help startups meet the working capital requirements during the initial years of operations.
Similarly, the extension of long-term capital gains by another year will serve as a relief. Under the current regulations, any capital gains accrued by a startup will get tax exemption if this gain or part of it is invested in a fund notified by the central government. This has to be done within a period of six months from the date of transfer of the asset.
Under the existing regulations, the maximum amount that can be invested in the long term specified asset is Rs 50 lakh. Also, such amount shall remain invested in the specified fund for a period of three years, but if withdrawn before this period then the exemption is revoked.
This has certainly come as a relief for the startups, though the sector’s main demand of treating capital gains tax on par with public listed companies has not been addressed.
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Edited by Megha Reddy
