Only startups with turnover of up to ₹25 cr eligible for tax holiday: CBDT

It did not recognise the ₹100-crore turnover definition of a small startup put up by the Department for Promotion of Industry and Internal Trade.

Startups broadly under Section 80 IAC of the Income Tax Act are allowed 100 per cent deduction of income for three years out of seven years from the year of its incorporation./ File

Seeking to allay concerns on tax holiday for startups, the tax department on Thursday said only small startups with a turnover of up to ₹25 crore will get tax holiday on fulfilling certain conditions.

It did not recognise the ₹100-crore turnover definition of a small startup put up by the Department for Promotion of Industry and Internal Trade (DPIIT).

“Since the intention was to support the small startup, the turnover limit of ₹25 crore was considered reasonable for granting profit linking deduction,” the Central Board of Direct Taxes (CBDT) said in a statement.

Startups broadly under Section 80 IAC of the Income Tax Act are allowed 100 per cent deduction of income for three years out of seven years from the year of its incorporation.

“The CBDT has clarified today [Thursday] that small start-ups with turnover up to ₹25 crore will continue to get the promised tax holiday as specified in Section 80-IAC of the Income Tax Act, 1961, which provides deduction for 100 per cent of income of an eligible start-up for 3 years out of 7 years from the year of its incorporation,” it said in a statement.

The CBDT further stated that all start-ups recognised by DPIIT which fulfilled the conditions specified in the DPIIT notification, did not automatically become eligible for deduction under Section 80-IAC of the Act.

“A start-up has to fulfil the conditions specified in Section 80-IAC for claiming this deduction. Therefore, the turnover limit for small start-ups claiming deduction is to be determined by the provisions of Section 80-IAC of the Act and not from the DPIIT notification,” it said.

Seeking to dispel confusion over the eligible turnover limit, the CBDT said there was no contradiction in DPIIT’s February 19 notification and the income tax provisions as the notification clearly mentioned that a start-up shall be eligible to apply for the certificate from the Inter-Ministerial Board of Certification for claiming deduction only if they fulfil the conditions specified in Section 80-IAC.

“Therefore, the turnover limit for eligibility for deduction under section 80-IAC of the Act, as per the DPIIT’s notification is also ₹25 crore,” it said.

The CBDT said Section 80-IAC contains a detailed definition of the eligible start-up including condition of having been incorporated on or after April 1, 2016, turnover not exceeding ₹25 crore in a year of deduction and holding a certificate from the Inter-Ministerial Board of Certification.

The CBDT said Section 80-IAC was inserted vide Finance Act, 2016 as an exception to the Government’s stated policy of phasing out profit-linked deduction for promoting small start-ups during their initial year of operation.

“Since the intention was to support the small startups, the turnover limit of ₹25 crore was considered reasonable for granting profit linking deduction,” it said.