The Finance Act 2020 brings various amendments which will positively impact start-ups. Recently, the Honorable Finance Minister remarked, “Entrepreneurship is the spirit of India and has been its strength. Considering the role of start-ups in Indian Economy, Finance Minister has given various relaxations for start-ups which will give new energy into start-up sector.
By Finance Act 2020, following relaxations are being provided to start-ups:
Relaxation in period for claiming tax holiday:
As of now, an eligible* Start-up is allowed deduction of 100% of its profits for any 3 consecutive years out of 7 years from the year of incorporation/registration. Considering long demand of start-ups now period for claiming deduction of 100% of its profits is relaxed to 3 consecutive years out of 10 years
Impact: Now longer period will be given to start-ups to choose any 3 years from 10 years as compare to previous 7 year’s clause.
Turnover limit increased for qualifying as eligible Start-up:
At present, there is an Annual Turnover Limit of INR 25 Crore for Start-ups to qualify as an eligible Start-up. By finance act 2020, it is proposed to increase the turnover limit to INR 100 Crore from existing 25 Crore.
Impact: Now big start-ups shall also be eligible for availing tax holidays as prescribed u/s 80IAC.
Reduction of TDS rate on “fee for technical services”
At present, payment for fee for technical services to a resident is liable to TDS u/s 194J at 10%. By finance act 2020 it is proposed that withholding tax on payment for ‘fee for technical services’ (other than professional services) shall be liable for TDS at 2%.
Impact: This will help to start-ups (who are providing technical services) in resolving the working capital crunch issue as previously their income was liable for 10% TDS whereas now it would be liable at 2%.
Deferment of tax on specified security or sweat equity shares issued by start-ups:
Now eligible Start-up will be required to deduct taxes in relation to specified security or sweat equity shares issued, within 14 days of earliest of the following:
- 5 years from the F.Y. in which the specified security or sweat equity share is allotted / transferred to the employee
- Date of the sale of specified security or sweat equity shares;
- Date of cessation of employment
*A Start-up would be called as eligible start-up if such start-up is recognised or obtained eligible certificate from DPIIT.