The Central Board of Direct Taxes (CBDT), on 22 August, has clarified that small start-ups with turnover up to Rs 25 crore will continue to get the promised tax holiday as stated in Section 80-IAC of the Income Tax Act, 1961. This section was inserted vide Finance Act 2016, which provides deduction for 100 per cent of income of an eligible start-up for 3 years out of 7 years from the year of its incorporation.
Section 80-IAC specifies a detailed definition of the eligible start-up stated below:
A start-up which is engaged in the eligible business shall be eligible for deduction only if it satisfies all the following 3 conditions:
- A start-up is incorporated on or after 1st April 2016,
- The turnover of the start-up does not exceed Rs. 25 crore in the year of deduction, and
- It holds a certificate from the Inter-Ministerial Board of Certification.
The circular followed the announcement made by Nirmala Sitharaman, the Indian Finance Minister during the Union Budget 2019. She proposed a host of incentives with a view to promote, encourage and develop startups and given special attention or special arrangement for resolution of pending assessments of income tax cases.
— Ministry of Finance (@FinMinIndia) August 22, 2019
Section 80-IAC has rolled down as an exception to the government’s stated policy for promoting and development of small start-up during their initial year of operation and phasing out a profit-linked deduction. The turnover limit of Rs 25 crore small start-up, is considered as reasonable for granting profit linking deduction according to CBDT.
From the above statement, it can be clearly stated that CBDT does not take into consideration of Rs 100-crore turnover definition of a small start-up which was defined by DPIIT.
CBDT has said in the statement that startup recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) as to first fulfil the conditions specified under Section 80-IAC for claiming this deduction. It does not automatically become eligible for the deduction as the turnover limit for small startups (claiming the deduction) is to be determined by the provisions of Section 80-IAC of the I-T Act and not from the DPIIT notification.