With confusion over turnover threshold, small startups may not get 3-year tax holiday

With less than 10 days left to file income tax returns for 2019-20, startups in India are faced with a conundrum. The central government formulated a policy with the intention of favouring startups, and the policy says startups can avail a tax holiday for three years as long as their turnover remains below Rs 100 crore. 

This is as per the policy document released by the Department for Promotion of Industry and Internal Trade (DPIIT), the nodal agency that wants to promote entrepreneurship among young Indians. This tax holiday can be availed for any block of 3 years within the first seven years of the startup’s date of incorporation. Startups typically don’t start making profits from the very first year of inception, which is why the extended concession has been given. There is also a condition that the entrepreneur has to obtain an endorsement from an Inter-Ministerial Board that it is a startup. 

However, tax laws stipulate that such a tax holiday is available only for startups that have a turnover threshold of ₹25 crores. Thus, startups are knocking on the doors of the government to have this anomaly removed before September 1 so that they can carry on their business without worrying about a notice from the Income Tax department, reports the Economic Times. 

The DPIIT had issued the notification in February, and ideally, should have pursued with the Central Board of Direct Taxes to issue a suitable notification amending the interpretation of a ‘startup’ under the Income Tax Act as well. It could still happen before the end of this month, and startups may continue to enjoy the tax holiday as intended.