Press Information Bureau 
Government of India
Ministry of Commerce & Industry
12-April-2017

Tax Exemption to Startups 

Various tax exemptions have been given to Startups in the recent past - Following direct tax incentives were provided in Income-tax Act,1961 (‘the Act’) to promote Start-ups through Finance Act,2016:

Introduction of new section 54EE in Income-tax Act, 1961 to exempt investment of long term capital gains by an investor in a fund notified by Central Government.

Amendment of section 54GB to provide exemption of capital gains arising out of sale of residential property, on investing the same in shares of Start-up company.

Introduction of new section 80-IAC to provide 100% deduction for three consecutive years out of five years, to profits of start-ups which are approved  by Inter-Ministerial Board of Certification notified by DIPP.

            To prevent incidence of “Angel Tax” on  angel investors investing in approved start-ups, CBDT vide Notification No.45/2016 dated June 14,2016 notified that Angel investors funding to approved start-ups shall be exempt from incidence of tax under section 56(2)(viib).

            Further, vide Finance Act,2017, following benefits have been provided to start-ups:

Amendment of section 79 of the Act to provide that in the case of a company being an eligible start-up, loss shall be carried forward and set off against the income of the previous year, even if a change in shareholding has taken place in a previous year subject to all the shareholders of such company on the last day of the year or years in which the loss was incurred, continuing to hold shares on the last day of such previous year. The restriction of fifty one percent of shareholding of company to remain unchanged in order to carry forward and set-off the loss of earlier years has therefore been relaxed in the case of start-ups.

Amendment to provide that deduction under section 80-IAC can be claimed by    an eligible start-up for any three consecutive assessment years out of seven years beginning from the year in which such eligible start-up is incorporated as against three years out of five years provided by Finance Act, 2016.

            The above exemptions would encourage seed-capital investment in Startups, facilitate their growth and meet the working capital requirements during the initial years of operation. Further, they would also promote investments into Start-ups by mobilizing the capital gains arising from sale of capital assets.

            This information was given by the Commerce and Industry Minister Smt. NirmalaSitharaman in a written reply in Rajya Sabha today.

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MJPS

Government of India

Ministry of Finance

Department of Revenue

Central Board Direct Taxes

INSTRUCTION NO. 5/2013

[F. NO. 275/03/2013-IT(B)]

DATED 8-7-2013

1. The CBDT issues instructions with respect to processing of Income-tax returns and giving credit for TDS thereon in the case of TDS mismatch. A few of the instructions on this subject issued in previous years are Instruction No. 1/2010 (25-2-2010) for returns pertaining to A.Y, 2008-09; Instruction No. 05/2010 (21-7-2010), Instruction No. 07/2010 (16-8-2010) and Instruction No. 09/2010 (9-12-2010) for returns pertaining to AY. 2009-10; Instruction No. 02/2011 (9-2-2011) for returns pertaining to A.Y. 2010-11; and Instruction No. 1/2012 (2-2-2012) and Instruction No. 04/2012 (25-5-2012) for returns pertaining to A.Y. 2011-12. The instructions gave decisions and the manner in which the TDS claims were to be given credit while clearing the backlog of returns pending processing. In the cases that did not fall under the specific TDS amount limit or refund amount computed, the residuary clause in these instructions gave the manner of processing those returns and it stated that "TDS credit shall be given after due verification ".

2. The Hon'ble Delhi High Court vide its judgment in the case 'Court On its Own Motion v. UOI and Ors. (W.P. (C) 2659/2012 & W.P. (C) 5443/2012 dated 14-3-2013) = (2013) 352 ITR 273 (Delhi) has issued seven mandamuses for necessary action by Income-tax Department, one of which is regarding the issue of non-credit of TDS to the taxpayer due to TDS mismatch despite the assessee furnishing before the Assessing Officer, TDS certificate issued by the deductor.

3. In view of the order of the Hon'ble Delhi High Court (reference: para 50 of the order); it has been decided by the Board that when an assessee approaches the Assessing Officer with requisite details and particulars in the form of TDS certificate as an evidence against any mismatched amount, the said Assessing Officer will verify whether or not the deductor has made payment of the TDS in the Government Account and if the payment has been made, credit of the same should be given to the assessee. However, the Assessing Officer is at liberty to ascertain and verify the true and correct position about the TDS with the relevant AO (TDS). The AO may also, if deemed necessary, issue a notice to the deductor to compel him to file correction statement as per the procedure laid down.

4. Thus, the manner laid down by the Hon'ble HC in the above mandamus may be one of the method of due verification as mentioned in the various instructions referred in para (1) above.

5. This may be brought to notice of all Officers working under your jurisdiction for compliance.