Department of Industrial Policy and Promotion considered only 88 of the total applicants as certified for tax exemptions, implying a strike rate of mere 4%.
Startup India Scheme has only benefited less than a 100 startups so far with respect to income tax exemptions since its launch in 2016. Data available till 24 July 2018 showed that 2,197 applicants applied for tax benefits out of the total 11,422 recognised by the government, The Indian Express reported recently.
Department of Industrial Policy and Promotion considered only 88 of the total applicants as certified for tax exemptions, implying a strike rate of mere 4%. If all the recognised startups were taken into account, then the percentage of those granted tax breaks would see a further dip, the report said.
The DIPP recognised startups are granted tax exemptions only after they undergo a screening mechanism of the Inter-Ministerial Board (IMB) which judges them on innovation and job creation potential. The process was regarded as being ‘rigorous’, for, only a few could pass it to actually get tax exemptions.
To address the issue, DIPP has moved some changes which circumvent the IMB to reach out to the Central Board of Direct Taxes (CBDT) directly to claim tax breaks under the Income Tax Act. Firms will now have to submit their applications through the DIPP website, which will be forwarded to the CBDT from there onwards. CBDT will evaluate the application and respond to it within 45 days.
“Tax exemption is typically granted to unique and innovative startups. So the IMB scrutiny was justified. But given the rate of progress, this route is being eased now,” the report cited a government official involved as saying.
Under the Startup India Scheme, tax exemption is available to startups for two aspects — income and investment raised. In the first, income tax break, which is available to these businesses under Section 80 Income Tax Act, where they can avail income tax exemptions for three years in the first seven of their establishment provided they were set up between April 1, 2016 and March 31, 2019.
In the second aspect, the startups and their angel investors are allowed tax breaks under IT Act such that the companies when issuing shares are charged 30% tax on the difference between funds raised as per the actual valuation and the fair market value of the company.