Govt may give five-year tax break to startups

A week after launching startup movement, the Centre’s generosity towards innovators seems to have increased as it is planning to extend the tax holiday to five years from the three years as announced by Prime Minister Narendra Modi on January 16.

A top government official told Deccan Herald that the Centre was seriously considering the proposal and the Commerce Ministry was in talks with the Finance Ministry to work out a practicable solution.

The plan comes in the wake of some shrill noises that a three-year income tax holiday on startups’ profit was too little because normally, the profit occurs only after four to five years.

“We are discussing with the Revenue Department (which comes under Finance Ministry) on whether the startups should be given the income tax exemption for three years after they start making profit or should they be given five years altogether,” Secretary, Department of Industrial Policy and Promotion (DIPP) Amitabh Kant said.

Kant is considered to be the brain behind Modi government’s flagship initiatives such as “Make in India” and “Startup India” among others.

Budget bonanza

Separately, another official said that preparations were on to exempt startups from paying service tax in the initial years. He said that this and some other policy tweaks may be expected in the Budget to be presented by Finance Minister Arun Jaitley on February 29.

Last week, the prime minister had announced a slew of measures to give a push to startups at a time when they were moving out of India due to unfriendly regulatory framework. Prominent among the measures were a Rs 10,000-crore corpus fund, a Rs 500-crore credit guarantee fund and exemption from capital gains tax and income tax profit for three years.

But Modi’s proposal to invest Rs 10,000 crore worth of public money in venture capital funds that are registered with India’s stock market watchdog, Sebi, was criticised on the ground that venture capital funds operate with risky business models. In the same breath, the tax breaks were also criticised for being too little.