Govt extends tax holiday for eligible startups by 1 more year

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 In further respite for startups amid the ongoing Covid-19 pandemic, the government on Tuesday announced to extend the period to avail tax incentives by one more year.

To incentivise startups, the government had last year extended the eligibility for claiming tax holidays for startups by a year to March 31, 2022. It had also extended the capital gains exemption for investment in startups by a year to March 31, 2022 to boost funding.

In her Union Budget 2022-23 speech delivered in the Parliament on Tuesday, Finance Minister Nirmala Sitharaman said that startups have emerged as drivers of growth in the economy.

“Eligible startups established before 31.3.2022 had been provided a tax incentive for three consecutive years out of 10 years from incorporation. In view of the Covid pandemic, I propose to extend the period of incorporation of the eligible startup by one more year, i.e., up to 31.03.2023 for providing such tax incentive,” she informed.

India now has more than 61,400 startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT). At least 14,000 recognised startups have been added in 2021-22 fiscal, according to the Economic Survey 2021-22.

India presently has 83 unicorns, most of which are in the services sector, with 44 startups achieving the unicorn status (values more than $1 billion) last year.

“This Budget is a welcome move for startups and manufacturing companies which have been given additional time periods to fulfil their dreams and avail tax holiday and concessional tax benefits,” said Ashu Kansal, CFO of robotic automation startup, Addverb Technologies.

“Capping of long-term capital gains (LTCG) surcharge to 15 per cent is again a windfall gain to the private sector employees and co-founders who had to earlier shell out extra surcharge to the extent of 37 per cent,” he said.

According to startup founders, meeting working capital requirements during the initial years of operation is often tough for startups.

“Hence, tax exemption for startups being extended by one more year is a welcome move, and it is likely to further encourage innovations and growth that the startup ecosystem is delivering,” said Ravish Naresh, CEO and Co-founder, Khatabook.

Anubhav Jain, CEO and Co-founder of Rupifi, said that the Budget has put a conscious focus on neutralising pandemic effects by proposing a slew of measures for startups.
“The move to extend the Emergency Credit Line Guarantee Scheme (ECLGS) to MSMEs to cope up with pandemic losses is a welcome step and will have a positive impact in assisting the industry in overcoming its struggles,” said Jain.

“Additionally, extending the sunset date for eligibility for tax holiday by one more year will provide required thrust to the startup ecosystem,” he added.

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