Government plans to offer more tax sops for startups
Currently, startups are allowed tax benefits for three consecutive years in a seven-year period, which many companies have argued is restrictive.
Besides, these investors may be allowed to claim tax deduction over a 10-year period instead of the current block of seven years. Currently, startups are allowed tax benefits for three consecutive years in a seven-year period, which many companies and experts have argued is restrictive, since profits often do not begin flowing during this time span.
The steps are part of discussions between the department for promotion of industry and internal trade (DPIIT) and the revenue department to address concerns over angel tax, which is applicable on capital raised by unlisted companies from any entity against an issue of shares in excess of fair market value.
Finance ministry sources said, DPIIT has proposed an investment declaration to separate them from shell companies. Investments can flow into these companies without any questions being asked by the tax department. Startups that do not own real estate, premium cars, jewellery and gold, listed or unlisted securities and arts and coins and submit their audited financials and tax return from the previous year will be eligible for the “green channel” benefits.
“All DPIIT-registered startups will be given the tax benefit up to a level that is yet to be decided,” said a source, adding that the new rules may be in place as early as next week.
Sources said the government is keen to provide a fillip to the entities as it seeks to push job-creation.
While the tax department has concerns over “accredited investors”, it is willing to allow listed Indian companies with a turnover of over Rs 100 crore or a stipulated net worth to get the same tax benefits as angel investors. Sources said the thresholds are yet to be worked out.
Similarly, certain relatives who invest in startups may also be eligible for the concession. “We have made a submission on behalf of the startups on our platform that full exemption must be given from Section 56(2) viib up to a certain amount of share premium on the basis of submission of ITR, audited financials and an investment declaration form,” said Sachin Taparia, founder of LocalCircles, who along with lobby group iSpirt made the proposal.