Budget 2016: 100 per cent deduction of profits for startups; exemption from capital gains

By: | Updated: February 29, 2016 7:21 PM

Union Budget 2016: Finance Minister has also proposed to establish a Rs 2,500 crore Fund of Funds annually for four years to finance the startups.

Union Budget 2016 - Arun JaitleyUnion Budget 2016: Finance Minister has also proposed to establish a Rs 2,500 crore Fund of Funds annually for four years to finance the startups.

In a move that could provide a major boost to startups, Finance Minister Arun Jaitley in his Union Budget speech proposed 100 per cent deduction of profits and gains from innovation development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.

The benefit will be available to startups which were setup before April 1, 2019.

The budget has also proposed to establish a Rs 2,500 crore Fund of Funds annually for four years to finance the startups.

Finance Minister Arun Jaitley has also proposed to insert a new Section 54EE to provide exemption from capital gains tax if the long term capital gains proceeds are invested by an assessee in units of such specified fund, subject to the condition that the amount remains invested for three years failing which the exemption shall be withdrawn.

Investment in units of the specified fund shall be allowed up to Rs 50 lakh.

To provide relief to an individual or HUF willing to setup a start-up company by selling a residential property to invest in the shares of such company, the Budget has proposed to amend section 54GB so as to provide that long term capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital gains are invested in subscription of shares of a company which qualifies to be an eligible start-up. This is subject to the condition that the individual or HUF holds more than fifty per cent shares of the company and such company utilises the amount invested in shares to purchase new asset before due date of filing of return by the investor.

The existing provisions of section 54GB provide exemption from tax on long term capital gains in respect of the gains arising on account of transfer of a residential property, if such capital gains are invested in subscription of shares of a company which qualifies to be a small or medium enterprise under the Micro, Small and Medium Enterprises Act, 2006 subject to other conditions specified therein.

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