Tax Holidays for Startups

Startup Tax Holiday has been established to encourage and aid businesses in their formative stages of development and hence Section 80 IAC was established. 

Section 80 IAC of the Income Tax Act of 1961 enables a Startup recognized by the Department of Industry Policy & Promotion to demand tax exemption for 3 consecutive financial years.

The budget 2023 announcement was made recently in Parliament on February 1st, 2023. In which multiple decisions on various topics were made. Section 80 IAC of the Income Tax Act of 1961 was one of the issues raised by Finance Minister Smt. Nirmala Sitaraman. To encourage the establishment of start-ups in India, the government recommended changing the terms of Section 80 IAC. Smt Nirmala Sitaraman stated that the period for incorporation of qualifying startups would be extended till April 1, 2024.
This amendment will become effective on April 1, 2023, and will apply to the assessment years 2023-24 and following assessment years.

 > What is section 80 IAC of the Income Tax Act, 1961?

Ans – Section 80 IAC of the Income Tax Act, 1961 is an advantage for startups provided by Central Government. In this section startups can avail tax deduction of an amount which will be equal to one hundred percent of their profits and gains from qualified business.

>  What is mean by qualified business?

Ans – A qualified business is one operated by an authorized start-up that develops goods or services with the potential to significantly grow the economy or the number of jobs.

>  How will startups get tax exemptions?

Ans – For this tax exemption and approval, startups must submit an application through the startup India website. After the startup has received approval, they are eligible to receive revenue from vacation for 3 consecutive fiscal years out of the company’s first 10 years of incorporation.

>  Which Startups are eligible to apply for income tax exemptions under section 80 IAC?

Ans – Startups ought to be acknowledged by DIPP as such. Startups must be formed as a private limited company or as a limited liability partnership (LLP). Startups can seek tax exemptions only during their first ten years of operation. The company’s total annual revenue must be less than 100 crore rupees. The startup must be formed after April 1st, 2016.

>  What are the recent amendments on section 80 IAC of income tax act 1961, after budget 2023?

Ans – The proposed amendment would change the period for eligible start-ups to be incorporated from “April 1st 2023” to “April 1st, 2024”.