Thursday, March 10, 2016

Startup Tax 100% Deduction Under Section 80IAC of Income Tax Act Explained !

Finance Bill 2016 introduced in the budget session contains various tax incentives for flag ship programs of NDA government - startup India . One of the key benefit is 100% tax deduction for startups tax proposal for which government has introduced new provision of tax deduction under section 80IAC of the Income Tax Act .

7 Major Points for 100% Tax Deduction U/s 80IAC ?

The profit of a startup will get tax deduction u/s 80IAC equal to 100% of the profit earned in 3 out of first five years. So salient rules for claiming deduction u/s 80IAC are as under :
  1. Startup is incorporated on or after the 1st day of April, 2016 but before the 1st day of   20 April, 2019; 
  2. The total turnover of  business of startup does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and
  3. Deduction u/s 80IAC is allowed to eligible startups setup before 01/04/2019 only .
  4. The deduction is for eligible business or professional income.
  5. The deduction of  one hundred per cent. is allowed for three consecutive assessment years.
  6. The assessee can chose the start year of three consecutive years out of first five years . 
  7. Startup should not :
    1. be started by splitting up, or the reconstruction, of a business already in existence.
    2.  it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Section 80IAC of the Income Tax Act

80-IAC. (1) Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent. of the profits and gains derived from such business for three consecutive assessment years.
(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of five years beginning from the year in which the eligible start-up is incorporated.
3) This section applies to a start-up which fulfils the following conditions, namely:—
(i) it is not formed by splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;
(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation 1.— For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for  any purpose, if all the following conditions are fulfilled, namely:—
(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;
(b) such machinery or plant is imported into India;
(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.                                                                                                                                       
Explanation 2.—Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent. of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have   10 been complied with.
(4) The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1).
Explanation.—For the purposes of this section,—
(i) “eligible business” means a business which involves innovation, development, deployment   15 or commercialisation of new products, processes or services driven by technology or intellectual property;
(ii) “eligible start-up” means a company engaged in eligible business which fulfils the following conditions, namely:—
(a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of   20 April, 2019;
(b) the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and
(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification    as notified in the Official Gazette by the Central Government.’.

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