Will small start-ups continue to get three-year tax HOLIDAY or not?

Income Tax for Startups: There has been confusion on whether small start-ups with turnover up to Rs 25 crore will continue to get tax relief or not.

CBDT has said that Section 80-IAC contains a detailed definition of the eligible start-up which, interalia, provides that a start-up which is engaged in the eligible business shall be eligible for deduction. Representational image/Pixabay

Income Tax for Startups: There has been confusion on whether small start-ups with turnover up to Rs 25 crore will continue to get tax relief or not. The Central Board of Direct Taxes (CBDT) has now issued a clarification on this issue. In an official statement, the CBDT has said that small start-ups with turnover up to Rs 25 crore will continue to get the promised tax holiday as specified in Section 80-IAC of the Income Tax Act, 1961. The Income Tax Act provides a deduction for 100 per cent of the income of an eligible start-up for three years out of seven years from the year of its incorporation.

CBDT has also clarified that all the start-ups recognised by DPIIT, which fulfilled the conditions specified in the DPIIT notification, did not automatically become eligible for deduction under Section 80-IAC of the Act.

Eligibility for tax HOLIDAY

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A start-up has to fulfil the conditions specified in Section 80-IAC for claiming this deduction. Therefore, the turnover limit for small start-ups claiming deduction is to be determined by the provisions of Section 80-IAC of the Act and not from the DPIIT notification.

CBDT dispelled the confusion created by some media report claiming discrepancy that the I-T law was yet to reflect DPIIT’s higher turnover threshold of Rs. 100 crore.

CBDT said, "there was no contradiction in DPIIT’s notification dated 19.02.2019 and Section 80-IAC of the I.T. Act, 1961 because in para 3 of the said notification, it has clearly been mentioned that a start-up 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. Therefore, the turnover limit for eligibility for deduction under section 80-IAC of the Act, as per the DPIIT’s notification is also Rs. 25 crore."

Startup Definition

(i) it is incorporated on or after 1st April 2016

(ii) its turnover does not exceed Rs. 25 crore in the year of deduction.

(iii) it holds a certificate from the Inter-Ministerial Board of Certification.

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