Clarification By CBDT On Tax Holiday To Startups

Eligibility for getting tax holiday

As per sec 80-IAC of the income tax act, 1961

Where the gross total income of an assessee , being an eligible startup includes any profits and gains derieved from eligible business , there shall in accordance with and with and subject to provisions of this section , be allowed , in computing the total income of the assessee , a deduction of an amount equal to one hundred percent of the profits and gains derieved from such business for three consecutive assessment years.

Such deduction may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of seven years beginning from the year in which the eligible startup is incorporated.

Eligible startup as per income tax act

A company or a limited liability partnership engaged in eligible business which fulfills the following conditions –

  • It is incorporated on or after the 1st day of April ,2016 but before the 1st day of April 2021
  • The total turnover of the business does not exceed twenty -five crore rupees in the previous year relevant to the assessment year for which deduction is claimed
  • It holds a certificate of eligible business from the inter-ministerial board of certification as notified in the official gazette by the central government

Startup as per DPIIT (department for promotion of industry and internal trade)

An entity will be considered as startup

  • The turnover of any financial year does not exceed 100 crores
  • Then the entity can be treated as eligible startup for a period of 10 years

Clarification given by CBDT

Though the eligible startup needs to obtain an eligibility certificate from DPIIT, for availing tax holiday as per sec 80-IAC of the income tax act, the turnover of that startup should not exceed 25 crores.

The clarification is that, though the entity was recognized as eligible startup as per DPIIT it should fulfill the conditions specified under section 80-IAC of the income tax for availing tax holiday.

Let u discuss the same with an example

Three companies were started in the 2017,the turnover of those companies are

  • A Ltd -20 crores
  • B Ltd -85 crores
  • C Ltd -120 crores

Now let us see which one is eligible to get tax holiday and which is eligible startup and which is not.

Assume all fulfills the other conditions for tax holiday as per sec 80-IAC of IT ACT,1961.

CRITERIA A LTD(20 cr) B LTD(85 cr) C LTD(120 cr)
As per DPIIT Turnover < 100 cr so startup Turnover < 100 cr so startup Turnover > 100 cr not a startup
As per sec 80-IAC Turnover < 25cr so eligible startup Turnover > 25cr so not an eligible startup Turnover > 25cr so not an eligible startup
Eligible to tax holiday or not Eligible Not Eligible Not Eligible

Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."

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