The much awaited Union Budget 2016-17 has finally been unveiled. In his presentation, Finance Minister Arun Jaitley announced a 100% tax deduction programme for 3 years over a period of five years for startups approved before FY2019 under the Startup India scheme.
Moreover, to ensure that only deserving enterprises get to reap the benefits of the “Start Up Action Plan”, the government has strictly defined the term ‘Startup’ as “a company which would have equity funding of at least 20% by incubation, angel or private equity fund, an accelerator or angel network registered with SEBI endorsing the innovative nature of the business.”
Jaitley in his presentation, expatiated on a series of policy initiatives and schemes that aim at eliminating the common challenges startups come across, and ensure that MSMEs in the country get a fillip. Few of the key highlights are:
- No tax on income from Startups. 100% deduction on profits for startups for 3 out of first 5 years; MAT to apply.
- Shortening of the holding period of from three to two years to get benefits of long term Capital Gain regime in case of unlisted companies.
- Registration of a company will take no longer than just a day under the Government’s 1 Day Incorporation Policy.
- The corporate income tax rate for the next financial year of relatively small enterprises i.e companies with turnover not exceeding Rs. 5 crore (in the financial year ending March 2015) is proposed to be lowered to 29 % plus surcharge and cess. The new manufacturing companies which are incorporated on or after 1.3.2016 are proposed to be given an option to be taxed at 25% plus surcharge and cess provided they do not claim profit linked or investment linked deductions and do not avail of investment allowance and accelerated depreciation.
Union Budget 2016-17 : Govt to amend Companies Act to encourage Start Ups in India
While presenting the Union Budget 2016-17 in Parliament, Financial Minister Arun Jaitely announced that the government will be updating the Companies Act to ensure conducive environment for start ups. The government aims to ease up the process of registration, and hopes to complete the procedures within one day.The announcement follows the government initiative to encourage entrepreneurship among SC/ST people in the country. It may be recalled that the Prime Minister Modi had recently announced several measures to push start ups in India. He also inaugurated a new initiative called Start Up India on the lines of Digital India and Make in India.
Among few main highlights of the Start Up India initiative includes make the startup process easy, help save local patents, tax exemptions, 80 per cent discount on filing patent applications by startups.
The minister also announced that a The National Skill Development Mission will provide training to 76 lakh youth.
The government has also announced a few important measures for improving lives of people in rural areas through Digital Literacy. It has launched a National Digital Literacy Mission Scheme, which will cover about about 6 crores of houses in rural areas in the next three years. Details about the scheme will be announced shortly.
Finance Minister has also an unified e-portal for agriculture. The portal will be launched on Baba Ambedkar’s birth anniversary this year.
BUDGET 2016 SPELLS OUT TAX INCENTIVES FOR START-UPS
With a view to providing an impetus start-ups and facilitate their growth in the initial phase of their business, finance minister Arun Jaitley in his budget speech for 2016-17 said it is proposed to provide a deduction of 100% of the profits and gains derived by an eligible start-up from a business involving innovation development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
The benefit of 100% deduction of the profits derived from such business shall be available to an eligible start-up which is setup before 01.04.2019, Furter, in order to promote the start-up ecosystem in the country, it is envisaged in ‘start-up India Action Plan’ to establish a fund of funds which intends to raise Rs 2500 crore annually for four years to finance the start-ups.
Keeping this objective in view, it is proposed to insert a new section 54EE to provide exemption from capital gains tax if the long term capital gains proceeds are invested by an assessee in units of such specified fund, as may be notified by the Central Government in this behalf, subject to the condition that the amount remains invested for three years failing which the exemption shall be withdrawn. The investment in the units of the specified fund shall be allowed up to Rs. 50 lakh.
The existing provisions of section 54GB provide exemption from tax on long term capital gains in respect of the gains arising on account of transfer of a residential property, if such capital gains are invested in subscription of shares of a company which qualifies to be a small or medium enterprise under the Micro, small and medium Enterprises Act, subject to other conditions specified therein.
The objective to provide relief to an individual or HUF willing to start-up company by selling a residential property to invest in the shares of such company, it is proposed to amend section 54GB so as to provide that long term capital gains arising on account of transfer of a residential property shall not be charged to tax if such capital are invested in subscription of shares of a company which qualifies to be an eligible start-up subject to the condition that the individual or HUF holds more than 50% shares of the company and such company utilizes the amount invested in shares to purchase new asset before due date of filing of return by the investor.
The existing provision of section 54GB requires that the company should invest the proceeds in the purchase of new asset being new plant and machinery but does not include, inter-alia, computers or computer software.
With a view to provide provisions that are in sync with today’s condition of start-ups where computers or computer software form the core asset base owing to nature of business activity, it is proposed to amend section 54GB so as to provide that the expression “new asset” includes computers or computer software in case of technology driven start-ups so certified by the Inter-Ministerial Board of Certification notified by the Central Government in the official gazette.
These amendments will take effect from 1st April 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent assessment years.