Government recognition cannot make startups eligible for tax holiday, clarifies CBDT

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Updated: August 22, 2019 7:45:25 PM

Central Board of Direct Taxes (CBDT) on Thursday said that startups with turnover up to Rs 25 crore will continue to avail the tax holiday as per the Section 80-IAC of the Income Tax Act, 1961.

The board said that DPIIT recognised startups cannot become eligible for deduction under Section 80-IAC.

Central Board of Direct Taxes (CBDT) on Thursday said that startups with turnover up to Rs 25 crore will continue to avail the tax holiday as per the Section 80-IAC of the Income Tax Act, 1961 that offers deduction for 100 per cent of income of an eligible startup for three years out of seven years since the incorporation year. The board also said that even if the startups are DPIIT recognised, they cannot become eligible for deduction under Section 80-IAC and that startups must comply with the conditions mentioned under the said section to become eligible.

The clarification by the CBDT comes after some media reports claimed that the Income Tax act hasn’t reflected DPIIT’s higher turnover threshold of Rs 100 crore. The board denied of any difference in the DPIIT’s February 2019 notification and Section 80-IAC as “in para 3 of the said notification, it has clearly been mentioned that a startup shall be eligible to apply for the certificate from the Inter-Ministerial Board of Certification for claiming deduction under Section 80-IAC of the Act, only if the start-up fulfils the conditions specified in sub-clause (i) and sub-clause (ii) of the Explanation of Section 80-IAC,” the Ministry of Finance said in a statement today.

CBDT also said that Section 80-IAC explains that startups engaged in the “eligible business” are eligible for the deduction provided they incorporated on or after 1st April 2016, that their turnover is not beyond Rs 25 crore during the deduction year, and they are certified by the Inter-Ministerial Board of Certification.

According to the board Section 80-IAC is an exception to the government’s policy of “phasing out the profit-linked deduction for promoting small startups during their initial year of operation,” the ministry added. In order to support small startups, Rs 25 crore turnover threshold was considered reasonable for providing a profit-linked deduction. The turnover limit for startups seeking tax deduction in fact has to be decided by the provisions of Section 80-IAC.

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