Indian Union Budget 2021-22: Finance Minister Nirmala Sitharaman in her third price range speech on Monday rolled out tax incentives for startups with respect to capital gains. The minister proposed an extension in eligibility for claiming tax vacation along with capital gains exemption for investment in startups by one year to March 2022. “In order to incentivise startups in the country, I propose to extend the eligibility for claiming tax holiday for startups by one more year to March 31, 2022…In order to incentivise funding for the startups, I propose to extend the capital gains exemption for investment in startups by one more year to March 31, 2022,” Sitharaman stated.
“A much-needed boost has been given to the startup environment by extension of time to qualify as a startup for the purposes of the tax holiday. Further, an extension of the time limit to qualify for capital gains tax exemption by investing in startups would see more capital being made available by the first time investors to the startups. It is hoped that the government considers extending such time limits indefinitely, in the coming years, to have a sustainable support mechanism around startups,” Indruj Rai, Partner, Khaitan & Co told TheSpuzz Online.
A organization or an LLP incorporated on or just before March 31, 2022 (earlier terminal date of March 31, 2021) undertaking eligible business enterprise will now be eligible to claim the prescribed tax rebate of one hundred per cent of its income. Simultaneously, the extension of the capital gains exemption will be obtainable to people and Hindu Undivided Families (HUFs) for investment in eligible startups by one more year. “In other words, the taxpayer could make investments in eligible startups in respect of the transfer of residential property undertaken anytime on or before March 31, 2022. This will act as a boost for investments in startups during these difficult times and will augment their growth and expansion,” Lokesh Shah, Partner, L&L Partners told TheSpuzz Online.
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While Sitharaman has taken proactive actions to increase the capital gains tax circumstance, “its implementation and oversight are key, and some pinpoints for early-stage investors in this area remain and need to be ironed out to make sure the intent of this announcement translates on the ground,” Utkarsh Sinha, Managing Director, Bexley advisors told TheSpuzz Online. “This extension, coupled with a similar extension for the tax holiday for qualifying as an eligible start-up, should provide a steady set of policy incentives for promoters/investors in start-ups for one more year. These are much-needed incentives for startups and promoters especially recovering from Covid,” Sridhar R, Partner, Grant Thornton Bharat LLP told TheSpuzz Online.
Usually, entrepreneurs who weren’t capable to raise funding from investors or from their network of good friends and household, either invested their personal savings or raised a individual loan earlier. In the absence of each circumstances, typically, entrepreneurs had to sell residential properties to fund their startup. However, FM Sitharaman in the prior price range had provided respite with the extension of the exemption period for investment in startups to March 31, 2021. The minister had also proposed relaxing the minimum holding of share capital or voting rights in the startup from 50 per cent to 25 per cent. However, with Monday’s announcement, startups and investors are probably to be incentivised additional. “This will be a big boost for startups, especially after Covid as they were one of the hardest hit amid the pandemic as funds dried up and operations halted for many of them. This will give them a leg up in the road to recovery.” Bala Sarda, Founder & CEO, VAHDAM India told TheSpuzz Online.