SME Times News Bureau | 22 Aug, 2019
The Central Board of Direct Taxes (CBDT) has
clarified on Thursday that small start-ups with turnover upto Rs. 25 crore will
continue to get the promised tax holiday as specified in Section 80-IAC of the
Income Tax Act, 1961(the ‘Act’), which provides deduction for 100 per cent of
income of an eligible start-up for 3 years out of 7 years from the year of its
CBDT further clarified that all the start-ups
recognised by DPIIT which fulfilled the conditions specified in the DPIIT
notification did not automatically become eligible for deduction under Section
80-IAC of the Act.
A start-up has to fulfil the conditions specified
in Section 80-IAC for claiming this deduction. Therefore, the turnover limit
for small start-ups claiming deduction is to be determined by the provisions of
Section 80-IAC of theAct and not from the DPIIT notification.
CBDT dispelled the confusion created by some
media report claiming discrepancy that the I-T law was yet to reflect DPIIT’s
higher turnover threshold of Rs. 100 crore.
CBDT said that there was no contradiction in DPIIT’s
notification dated 19.02.2019 and Section 80-IAC of the I.T. Act, 1961 because
in para 3 of the said notification, it has clearly been mentioned that a
start-up shall be eligible to apply for the certificate from the
Inter-Ministerial Board of Certification for claiming deduction under Section
80-IAC of the Act, only if the start-up fulfils the conditions specified in
sub-clause (i) and sub-clause (ii) of the Explanation of Section 80-IAC.
Therefore, the turnover limit for eligibility for deduction under section
80-IAC of the Act, as per the DPIIT’s notification is also Rs. 25 crore.
It is further stated that Section 80-IAC contains
a detailed definition of the eligible start-up which, interalia, provides that
a start-up which is engaged in the eligible business shall be eligible for
deduction, if (i) it is incorporated on or after 1st April 2016, (ii) its
turnover does not exceed Rs. 25 crore in the year of deduction, and (iii) it
holds a certificate from the Inter-Ministerial Board of Certification.
It was explained that this was the major reason
as to why there was a wide difference between the number of start-ups
recognised by the DPIIT and the start-ups eligible for deduction under section
80-IAC of the Act.
It is pertinent to state that Section 80-IAC was
inserted vide Finance Act, 2016 as an exception to the Government’s stated
policy of phasing out profit-linked deduction for promoting small start-ups
during their initial year of operation. Since the intention was to support the
small start-ups, the turnover limit of Rs. 25 crore was considered reasonable
for granting profit linking deduction.