The budget announcement for startups is favorable from various perspective including tax regime, amendment in Motor vehicle act to accelerate innovation in transportation sector to e-platform initiatives for the farmers. The startup community has been very hopeful of a favourable tax regime. One of the biggest bone contention being the long term capital gains tax The Long Term Capital Gains Tax due – while listed companies do not attract any LTCG beyond a holding period of 12 months, unlisted companies up until now attracted 20% tax till a holding period of 20%. This has now been reduced to a holding period of 2 years, however, we are still far behind countries like Singapore where they enjoy a 0% captial gains tax. While this should mobilise investment in early stage ventures, most investors might feel that they haven’t been incentivised for the high amount of risk they take while investing in an unlisted early stage venture vis-a-vis investing in a listed company.
While eliminating capital gains tax on investments made in regulated Fund of Funds for startups, we are still waiting to see the functioning of this huge sum of money earmarked as the fund of funds.
While Jaitley had already discussed this in January, his formal announcement of 100% deduction of profits in in a startup for the first 3 out 5 years is hardly practical for startups and would have limited implications on the prospects of a new venture as most new ventures focus more on growth and less on profit during the initial years.
Lowering the corporate Income tax rate for small companies with a turnover of less than 5 cr to 29% plus surcharge and cess is a welcome move and would help small and medium scale entrepreneurs. In the case of new manufacturing companies incorporated after 1 march 2016, lowering corporate tax to 25% plus surcharge provided they have a turnover of less than 5 cr is again in sync with the government’s push towards manufacturing.
Technuter.com News Service