Lok Sabha Question No. 1189 (UNSTARRED), answered on 2021-12-06
Subject: Tax Concession to Startups
Ministry: SKILL DEVELOPMENT AND ENTREPRENEURSHIP
Asked by: Ramcharan Bohra

## GOVERNMENT OF INDIA MINISTRY OF SKILL DEVELOPMENT AND ENTREPRENEURSHIP

## LOK SABHA

## UNSTARRED QUESTION NO. 1189

## TO BE ANSWERED ON 06.12.2021 TAX CONCESSION TO STARTUPS

## † 1189. SHRI RAMCHARAN BOHRA:

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

- (a)  whether  the  Government  have  fixed  any  target  for  giving  tax  concession  to  the startups  for  providing  more  and  more  avenues  of  employment  to  the  youth  of  the country;
- (b) if so, the details of the startups schemes;
- (c) whether the Government have allocated any funds/budget for the startups;
- (d) if so, the amount of budget allocated;
- (e) State-wise details thereof; and
- (f) State-wise details of jobs offered under this scheme?

## ANSWER

## MINISTER OF STATE FOR SKILL DEVELOPMENT AND ENTREPRENEURSHIP (SHRI RAJEEV CHANDRASEKHAR)

- (a) No Sir. The Government has not fixed any target for giving tax concession to the Startups.  However,  the  Government  is  very  committed  to  creating  world's  most successful  startup  ecosystem  in  India.  The  tax  concessions  already  provided  to  the startups under the Income Tax Act, 1961 are as mentioned at Annexure-I .
- (b) Government of India through Ministry of Commerce & Industry, Department for Promotion  of  Industry  and  Internal  Trade  (DPIIT)  has  launched  'Startup  India'  as  a flagship  initiative  on  16th  January,  2016  with  an  aim  to  build  a  strong  ecosystem  for nurturing  innovation  and  entrepreneurship,  to  drive  sustainable  economic  growth  and generate  large  scale  employment  opportunities.  A  19-point  Startup  India  Action  Plan was launched in January 2016 which paved the way for the introduction of a number of policy  initiatives  to  build  a  strong,  conducive,  growth-oriented  environment  for  Indian startups.  Hon'ble  Prime  Minister  unveiled  'Startup  India:  The  Way  Ahead'  at  5  years celebration  of  Startup  India  on  16th  January,  2021  which  lays  down  actionable plans for promotion of ease of doing business for startups, greater role of technology in executing  various  reforms,  building  capacities  of  stakeholders  and  enabling  a  digital Aatmanirbhar Bharat.
- (c)   Yes Sir.

(d) Government of India has established a Fund of Funds for Startups Scheme (FFS) to meet the funding needs of startups across the country. The total corpus of Rs. 10,000 crores is envisaged to be provided over the 14 th and 15 th Finance Commission cycles based on progress of the scheme and availability of funds. As of 27 th October, 2021, Small Industries  Development Bank  of  India  (SIDBI)  has  committed  INR  5,894 crores to 75 Alternative Investment Funds (AIFs) out of which INR 7,381 crores have been invested in 517 startups across India.

Further,  to  provide  financial  assistance  to  startups, Startup  India  Seed  Fund Scheme (SISFS) has been implemented from 1st April 2021. The Scheme has corpus of Rs. 945 crore that will be divided over the next 4 years for providing seed funding to eligible  startups  through  eligible  incubators  across  India.  It  will  support  an  estimated 3,600  entrepreneurs  through  300  incubators  in  the  next  4  years.  The  'Call  for Application' for Incubators under the Startup India Seed Fund Scheme was launched on 19th April 2021. As on 16th November 2021, 34 incubators have been selected and a sum of  Rs.  135  crore  has  been  approved  as  grant  under  the  scheme.   The  'Call  for Application' for Startups was launched on 19 th July  2021. As on date, application has been received from 1,446 startups under the scheme. 95 Startups have been selected for funding as on 16th November 2021 with a total grant of Rs 9.70 crore.

- (e) State-wise allocation of funds is not made under the Scheme.

(f)          State-wise  details  of  jobs  created  by  Startups  recognized  by  Department  for Promotion of Industry and Internal Trade (DPIIT) is available at Annexure-II .

## Annexure-I  referred  in  reply  to  Lok  Sabha  Unstarred  Question  No.  1189  to  be answered on 06.12.2021

## 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,  2022,  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.  Employee Stock Ownership Plan ( ESOP)

In order to ease the burden of payment of taxes by the employees and to incentivize the eligible  start-ups  to  employee 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 80-IAC of the Act, being paid 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  in  case  of  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 deeming of income for excessive share valuation:

Section 56(2) (viib) provides for deeming of income 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  can  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 in reply to Lok Sabha Unstarred Question No. 1189 to be answered on 06.12.2021

## State-wise details of jobs created by Startups recognised by DPIIT

| Name of the State                        | No.. of employees   |
|------------------------------------------|---------------------|
| Maharashtra                              | 1,21,097            |
| Karnataka                                | 92,444              |
| Delhi                                    | 75,784              |
| Uttar Pradesh                            | 54,500              |
| Gujarat                                  | 40,313              |
| Haryana                                  | 41,533              |
| Telangana                                | 37,202              |
| Tamil Nadu                               | 33,685              |
| Kerala                                   | 22,484              |
| Rajasthan                                | 18,681              |
| West Bengal                              | 17,908              |
| Madhya Pradesh                           | 16,471              |
| Odisha                                   | 11,262              |
| Bihar                                    | 7,927               |
| Andhra Pradesh                           | 9,606               |
| Chhattisgarh                             | 5,477               |
| Jharkhand                                | 4,129               |
| Punjab                                   | 7,985               |
| Uttarakhand                              | 3,719               |
| Assam                                    | 4,050               |
| Jammu and Kashmir                        | 2,103               |
| Goa                                      | 1,637               |
| Chandigarh                               | 1,993               |
| Himachal Pradesh                         | 1,140               |
| Manipur                                  | 610                 |
| Puducherry                               | 617                 |
| Tripura                                  | 1,154               |
| Andaman and Nicobar Islands              | 189                 |
| Dadra and Nagar Haveli and Daman and Diu | 306                 |
| Nagaland                                 | 114                 |
| Meghalaya                                | 144                 |
| Arunachal Pradesh                        | 53                  |
| Sikkim                                   | 43                  |
| Mizoram                                  | 67                  |
| Lakshadweep                              | 7                   |
| Ladakh                                   | 3                   |
| Grand Total                              | 6,36,437            |

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