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February 1, 2022

Know Changes in Tax Laws for Startups in Budget 2022

by Mahesh Mara in Budget, Income Tax

Know Changes in Tax Laws for Startups in Budget 2022

All about section 80IAC of the Income Tax Act From 1 April 2022

Startup India is an initiative of the Government of India. The campaign was first announced by Indian Prime Minister, Narendra Modi during his speech in 15 August 2015. The action plan of this initiative is focussing on three areas: Simplification and Handholding. Funding Support and Incentives. Start up India was intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities. Section 80IAC is a Tax exemption under the Income Tax Act is one of the benefits from the various benefits provided to startups under Startup India Scheme. In this article, we will discuss all about exemption under section 80IAC.

Who are eligible to claim deduction under section 80IAC?

Eligibility Criteria to claim Income Tax deduction under section 80IAC is as follows:

  • The entity should be recognized as a DPIIT Start up.
  • Private limited or a Limited Liability Partnership is eligible for Tax exemption under Section 80IAC
  • Start up should have been incorporated on or after 1st April 2016
  • Start-up is engaged in innovation, development or improvement of products or processes or services or a scalable business model with a high potential of employment generation or wealth creation.

What are the quantum of deduction under section 80IAC?

The provisions of the said section, inter alia, provide for a deduction of an amount equal to one hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assesses subject to the condition that––

(i) The total turnover of its business does not exceed one hundred crore rupees;

(ii) It is holding a certificate of eligible business from the Inter-Ministerial Board of Certification; and

(iii) It is incorporated on or after the 1st day of April, 2016 but before the 1st day of April 2022

Amendment in Section 80IAC as per Budget 2022:

The existing provisions of the section 80-IAC of the Act inter alia, provide for a deduction of an amount equal to one hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assesses subject to the condition that,-

(i) the total turnover of its business does not exceed one hundred crore rupees, (ii) it is holding a certificate of eligible business from the Inter-Ministerial Board of Certification, and

(iii) it is incorporated on or after 1st day of April, 2016 but before 1st day of April 2022.

2. Due to COVID pandemic there have been delays in setting up of such units. In order to factor in such delays and promote such eligible start-ups, it is proposed to amend the provisions of section 80-IAC of the Act to extend the period of incorporation of eligible start-ups to 31st March, 2023.

3. This amendment will take effect from 1st April, 2022 and will accordingly apply in relation to the assessment year 2022-23 and subsequent assessment years.

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