Finance Bill 2018: Startups Get Relaxation In 100% Deduction of Profit Criteria

In what could be called as surprise gift for startups, the criteria for claiming 100% deduction of profits has been relaxed by govt in form of an amendment to the Finance Bill 2018, passed in Lok Sabha yesterday.

In past, startups were allowed 100% deduction of profits for any 3 out of 7 years from the year of incorporation. However, to avail this incentive, the startups were required to comply with condition which stipulated that the turnover cannot exceed ₹25 crore in 7 years from the date of incorporation.

In an amendment to Finance Bill 2018, the govt. has now linked turnover limit directly to year of claim. According to this, the compliance condition is relaxed largely to the effect that turnover should not exceed prescribed limit for the year for which 100% deduction is claimed by the startup.

The above development was first reported in The Hindu.

For last couple of years, government along with few other bodies are mulling over to create more relaxed environment for startups in India. It is to be noted that in this week only, two big relaxations have been given to startups as beside relaxing the criteria for 100% deduction of profits for startups, India's market regulator Securities and Exchange Board of India (Sebi) is also planning to allow startups to list on the small and medium enterprises (SME) platform of the stock exchanges as an opportunity to raise capital apart from usual private equity and angel investment funding route.

Earlier, in financial budget of this year, time for claiming a tax holiday/exemption by eligible startups has been extended till April 1 2021.

However, despite of all this, one thing that disgust startups in India is that, in 2015, government withdrew the tax exemption given to company/startups doing research and development or startups based on R&D, which is a great setback for innovation in the country.

Tax Holiday For Startups Extended Till April 2021

Although, this year budget has very little to be rejoiced by Indian startup ecosystem as startups are not given its due importance by FM in Budget 2018. Nevertheless, there is little positive news for startups via this year budget, and this is -- time for claiming a tax holiday/exemption by eligible startups has been extended till April 1 2021.

Earlier, eligible startups could claim deduction for three out of seven years, if incorporated between April 1, 2016 and April 1, 2019. This has been extended by two more years to April 1, 2021.

Although startups can now avail income tax exemption for three years in a block of seven, many industry leaders, investor groups and startups feel there is little to celebrate in this development since most startups take a lot more time to just to break even.

Moreover, only those startups that have been incorporated after April 1, 2016 are eligible for getting 100% tax rebate under this provision, which will further narrow down the number of startups that can fall within its scope.

In fact, according to a statement by Department of Industrial Policy and Promotion (DIPP), government has selected only 67 startups out of the 671 startups that they were considering for income tax exemption.

Rohan Bhargava, Co-founder of CashKaro.com said, "This year's budget is more focused on driving growth in the traditional sectors of the economy and spend seems directed towards infrastructure, telecom, health, education. These are overall very relevant areas for our country to develop further and will have far reaching impact on industry and ease of living. However, the Budget lacks specific initiatives to directly boost Startups and corporates. We were hoping to see more details on simplification of tax structures, allocation of Startup India Fund, dissolution of Angel tax, extending tax holiday period, but many such topics have been completely left out by the Budget and perhaps may be addressed in the Annexure."

Budget 2018: Digital India Fund Doubles To Rs. 3073 crore; To Include AI and Robotics

In his address to the Parliament, while presenting the Budget for 2018, Finance Minister Arun Jaitley announced that Budget doubled the fund allocation on Digital India programme to Rs 3073 crore in 2018-19.

Additionally, he also stated that NITI Aayog will initiate a national program to direct efforts in artificial intelligence in the country.

The Department of Science and Technology (DST) will launch a Mission on Cyber-Physical Systems to support the establishment of centres of excellence for research, training and skilling in robotics, artificial intelligence, digital manufacturing, big data analysis, quantum communication and internet of things. "To invest in research training, and skilling in robotics, AI, digital manufacturing, big data intelligence, quantum communications and art of the things, the DST will launch a mission on cyberspace in support of the establishment of centre of excellence. I have doubled their allocation on the digital India program to Rs 3,073 crore in 2018-19," said finance minister Jaitley.

He said that the global economy is transforming into digital economy due to the development of cutting-edge technology in the digital space-machine learning, AI, IoT, 3D printing and likes. "Initiatives such as Digital India, start-up India, Make in India would help to establish itself as knowledge and digital society. Niti Ayog will establish a national programme to direct our efforts in the area of AI including research, and development of its applications," Jaitley said.

Notably, in September 2017, despite PM Modi’s ‘Digital India’ campaign India slipped to 91th rank in Network Readiness Index Rank, an yearly report by World Economic Forum. Notably, India’s network readiness index in 2013 was 61.

Besides government, there are few global tech companies that too are supporting Digital India programme as in November last year, Facebook introduced its digital and startup training hubs in India aimed at helping small businesses and people grow by giving them the digital skills they need. Through these hubs Facebook plans to train more than half a million people in the country by 2020.

In early 2017, Google too introduced Digital Unlocked program, a program aimed at getting all of India’s 51 million small and medium businesses (SMBs) online.