Lok Sabha Question No. 180 (UNSTARRED), answered on 2022-07-18
Subject: Tax Concessions for Start-ups
Ministry: SKILL DEVELOPMENT AND ENTREPRENEURSHIP
Asked by: Arvind Ganpat Sawant, Bhavana Gawali (Patil)

## GOVERNMENT OF INDIA MINISTRY OF SKILL DEVELOPMENT AND ENTREPRENEURSHIP

## LOK SABHA

## UNSTARRED QUESTION NO. 180 TO BE ANSWERED ON 18.07.2022

## TAX CONCESSIONS FOR START-UPS

## † 180. SHRI ARVIND GANPAT SAWANT: SHRIMATI BHAVANA PUNDALIKRAO GAWALI:

## Will  the Minister of SKILL DEVELOPMENT AND ENTREPRENEURSHIP be pleased to state:

- (a) whether the Government has fixed any target to give tax concessions for start-ups to provide more employment opportunities to the youth of the country;
- (b) if so, the details of the said schemes;
- (c) whether the Government has allocated any fund/budget for start-ups along with the State-wise details thereof; and
- (d) the State-wise details of the jobs being provided under the said scheme?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF SKILL DEVELOPMENT AND ENTREPRENEURSHIP (SHRI RAJEEV CHANDRASEKHAR)

- (a)  No Sir. The Government has not fixed any target to give tax concession for startups. However, the tax concessions already provided to the start-ups under the Income-tax Act, 1961 are mentioned at Annexure-I
- (b)   Does not arise.
- (c)  The Government of India through Department for Promotion of Industry and Internal Trade (DPIIT) is implementing Fund of Funds for Startups (FFS) Scheme and Startup India Seed Fund (SISF) Scheme, as part of Startup India initiative, to provide financial assistance  to  startups  through  Alternative  Investment  Funds  (AIFs)  and  incubators respectively. The Government has established FFS with corpus of Rs. 10,000 crore, to meet  the  funding  needs  of  startups,  to  be  provided  over  the  14th  and  15th  Finance Commission cycles based on progress of the scheme and availability of funds. Further, SISF  Scheme  aims  to  provide  financial  assistance  to  startups  for  proof  of  concept, prototype  development,  product  trials,  market  entry  and  commercialization.  Rs.  945 crore has been sanctioned under the SISF Scheme for period of 4 years starting from 2021-22. There is no State-wise allocation of funds under FFS and SISF Schemes.
- (d)        State-wise details of total number of employment generated, as self-reported by the  startups  recognized  by  Department  for  Promotion  of  Industry  and  Internal  Trade (DPIIT), as on 30 th June 2022 is available at Annexure-II.

## Annexure-I referred to in reply  to  Lok  Sabha Unstarred Question No. 180  to be answered on 18.07.2022

## Tax concessions provided to start-ups under the Income-tax Act, 1961

## 1.  100% deductions to the profit of the start-up under section 80-IAC:

100 % profit linked deduction to an eligible start-up, incorporated on or after the 1 st day of  April,  2016  but  before  the  1 st day  of  April,  2023,  for  a  period  of  three  consecutive assessment years out of ten years beginning from the year in which it is incorporated, if the  total  turnover  of  its  business  does  not  exceed  one  hundred  crore  rupees  in  the previous year relevant to the assessment year for which the deduction is claimed.

## 2.  ESOP

In order to ease the burden of payment of taxes by the employees and to incentivize the eligible start-ups to skilled employees, Finance Act, 2020 amended section 192 of the Act  deferring  TDS  deduction  in  respect  of  income  pertaining  to  ESOPs.  It  has  been provided that in case of an employee of an eligible start-up, as referred to in section 80IAC of the Income-tax Act, 1961 (the Act) being perquisite of the nature of ESOPs in any  previous  year  relevant  to  the  assessment  year  2021-22  or  subsequent  year, deduction/payment of tax on such income may be made within fourteen days-

- i. after  the  expiry  of  forty-eight  months  from  the  end  of  the  relevant  assessment year; or
- ii. from the date of the sale of such specified security or sweat equity share by the assessee; or
- iii. from the date of which the assessee ceases to be the employee of the person;

whichever is the earliest, on the basis of rates in force of the financial year in which the said specified security or sweat equity share is allotted or transferred.

## 3. Exemption from capital gains for investment in start-up under section 54GB:

In  order  to  incentivize  the  investment  in  the  eligible  start-up,  section  54GB  of  the  Act provides  exemption  of  capital  gains  arising  out  of  sale  of  residential  property  on  or before 31st March 2022, if the same was invested in shares of eligible start-up.

## 4. Relaxation for carry forward & set-off of loss by start-up:

Section  79  of  the  Income-tax  Act,  1961  contains  certain  restrictions  for  carry  forward and set-off  of  losses  in  case  of  certain  companies  where  there  is  change  of  majority shareholding.  In  order  to  facilitate  the  new  investment  in  the  start-up, Vide Finance (No.2) Act, 2019 the provisions of section 79 have been amended so as to allow an option to an eligible start-up, as referred to in section 80-IAC of the Act, to carry forward and set-off of losses even in the case of change in majority shareholding if the original shareholders continue to hold their shares.

## 5.  Exemption from taxation of income for excessive share valuation:

Section  56(2)(viib)  provides  for  taxation  of  income   in  the  hands  of  the  recipient  of money in case the shares are issued at a price higher than the fair market value of such shares. In order to ease the compliance burden as well as to promote the start-ups, this provision  has  been  relaxed  in  the  case  of  recognised  start-ups.  Under  this  relaxed regime, the provisions of section 56(2)(viib) are not applicable to the start-up recognized by  DPIIT  and  if  it  files  a  declaration.  As  this  regime  was  notified  in  February,  2019, Circular No. 16/2019 was issued by the CBDT for making this regime applicable to the assessment completed in the past also.

## 6.  Simplified assessment procedure:

The CBDT has issued circular for providing of simplified assessment procedure for the start-ups.  Under  this  procedure,  no  inquiry  in  the  case  of  start-up  is  to  be  initiated without obtaining the approval of the supervisory authorities.

## 7.  Outstanding income-tax demand of Start-ups

It  has  been  reiterated  time  and  again  by  CBDT  that  outstanding  income-tax  demand relating  to  additions  made under section 56(2)(viib) (angel tax)  would not be pursued and no communication in respect of outstanding demand would be made with the Startup entity. Other income-tax demand of the Start-ups would not be pursued unless the demand was confirmed by ITAT.

## 8.  Dedicated Start-up Cell:

In order to redress grievances and address various tax related issues in the cases of start-ups, a Start-up Cell is constituted on 30 th August, 2019 under the chairmanship of Member (IT&R), CBDT. The Cell may be approached for any grievances/ communications relating to Start-ups.

## Annexure-II referred to in reply to Lok Sabha Unstarred Question No. 180 to be answered on 18.07.2022

| State-wise details of total number of employment generated (as on 30 th June   | State-wise details of total number of employment generated (as on 30 th June   | State-wise details of total number of employment generated (as on 30 th June   |
|--------------------------------------------------------------------------------|--------------------------------------------------------------------------------|--------------------------------------------------------------------------------|
| S. No.                                                                         | States/ UTs                                                                    | Number of Employees                                                            |
| 1                                                                              | Andaman and Nicobar Islands                                                    | 215                                                                            |
| 2                                                                              | Andhra Pradesh                                                                 | 11,243                                                                         |
| 3                                                                              | Arunachal Pradesh                                                              | 69                                                                             |
| 4                                                                              | Assam                                                                          | 5,335                                                                          |
| 5                                                                              | Bihar                                                                          | 10,156                                                                         |
| 6                                                                              | Chandigarh                                                                     | 2,347                                                                          |
| 7                                                                              | Chhattisgarh                                                                   | 6,912                                                                          |
| 8                                                                              | Dadra and Nagar Haveli and Daman and Diu                                       | 423                                                                            |
| 9                                                                              | Delhi                                                                          | 87,643                                                                         |
| 10                                                                             | Goa                                                                            | 2,065                                                                          |
| 11                                                                             | Gujarat                                                                        | 51,193                                                                         |
| 12                                                                             | Haryana                                                                        | 48,843                                                                         |
| 13                                                                             | Himachal Pradesh                                                               | 1,558                                                                          |
| 14                                                                             | Jammu and Kashmir                                                              | 2,808                                                                          |
| 15                                                                             | Jharkhand                                                                      | 5,088                                                                          |
| 16                                                                             | Karnataka                                                                      | 1,03,541                                                                       |
| 17                                                                             | Kerala                                                                         | 28,451                                                                         |
| 18                                                                             | Ladakh                                                                         | 27                                                                             |
| 19                                                                             | Lakshadweep                                                                    | 7                                                                              |
| 20                                                                             | Madhya Pradesh                                                                 | 23,198                                                                         |
| 21                                                                             | Maharashtra                                                                    | 1,46,132                                                                       |
| 22                                                                             | Manipur                                                                        | 806                                                                            |
| 23                                                                             | Meghalaya                                                                      | 179                                                                            |
| 24                                                                             | Mizoram                                                                        | 87                                                                             |
| 25                                                                             | Nagaland                                                                       | 198                                                                            |
| 26                                                                             | Odisha                                                                         | 14,019                                                                         |
| 27                                                                             | Puducherry                                                                     | 740                                                                            |
| 28                                                                             | Punjab                                                                         | 9,196                                                                          |
| 29                                                                             | Rajasthan                                                                      | 24,599                                                                         |
| 30                                                                             | Sikkim                                                                         | 58                                                                             |
| 31                                                                             | Tamil Nadu                                                                     | 39,832                                                                         |
| 32                                                                             | Telangana                                                                      | 44,649                                                                         |
| 33                                                                             | Tripura                                                                        | 1,005                                                                          |
| 34                                                                             | Uttar Pradesh                                                                  | 67,694                                                                         |
| 35                                                                             | Uttarakhand                                                                    | 5,019                                                                          |
| 36                                                                             | West Bengal                                                                    | 22,419                                                                         |
|                                                                                | Grand Total                                                                    | 7,67,754                                                                       |

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