2016 was an interesting year for the country and its startups. With many states pushing for reforms in their policies to aid and help startups, along with educational institutions encouraging students to take up entrepreneurship via incubators and mentorships. To help us understand the Budget 2017, we invited Alok Patnia, Founder of TaxMantra.com to share his thoughts on the Budget for 2017 and how it impacts entrepreneurs and their startups.
The Government’s push for start-ups and entrepreneurship continues. Reeling under the pressure of demonetisation, Arun Jaitley, while presenting his Budget on Wednesday focused on start-ups and policies that cultivate entrepreneurship from the grassroots and the Union Budget 2017 looks supportive towards startups.
Finance Minister Jaitley in his Budget speech has announced various schemes which can have a positive impact on the start-up ecosystem in India. Ease of doing business and low tax rates were some crucial points in his speech. Some of the major highlights of the budget are :
Reduction of Corporate Tax rate
The present corporate tax rate in the Country is 30%. However, understanding that for start-ups every penny saved is beneficial the FM has proposed to reduce the income tax for smaller companies with annual turnover up to Rs 50 crore to 25 per cent, in order to make micro, small and medium enterprises (MSMEs) more viable and also to encourage firms to migrate to company format. However, the tax rate shall remain the same for the remaining industry at large.
Minimum Alternate Tax(MAT) Credit for 15 years-
MAT credit can be understood as the difference between the tax calculated under the general provisions of the Income Tax Act and that calculated under the MAT provisions of the Act. So, if the taxability under MAT is higher than taxability calculated under the general provision of Income Tax the extra amount so paid can be set off in the future years. At present MAT Credit is provided for 10 years. However, in order to allow companies to use MAT credit in future years, it is proposed to allow carry forward of MAT up to a period of 15 years instead of 10 years at present.
Measures for promoting digital payments in case of small unorganized businesses
The existing provisions of section 44AD of the Act, provides for a presumptive income scheme for SMEs with turnover upto two crore rupees to pay taxes @ 8% of the total turnover . In order to promote digital transactions and to encourage small unorganized business to accept digital payments, the presumptive tax will be lowered from 8% to 6%, in respect of the amount of such total turnover or gross receipts received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account. This would definitely lower the financial burden, and boost small merchants.
New Section(234F) to be introduced in Income Tax Act Fee for delayed filing of return
In view of the non-intrusive information-driven approach for improving tax compliance and effective utilization of information in tax administration, it is important that the returns are filed within the due dates. In order to ensure that return is filed within due date, it is proposed to insert a new section 234F in the Act to provide that fee for delay in furnishing of return. The proposed fee structure is as follows:—
(i) a fee of five thousand rupees shall be payable, if the return is furnished after the due date but on or before the 31st day of December of the assessment year;
(ii) a fee of ten thousand rupees shall be payable in any other case.
However, in a case where the total income does not exceed five lakh rupees, it is proposed that the fee amount shall not exceed one thousand rupees.
Startup india tax exemption for 3 out of first 7 years
In order to facilitate ease of doing business and to promote start up India,, Finance Minister Arun Jaitley, proposed extending the time period for availing tax benefit for three years in the first seven years of existence. Its a big support to the Indian start ups. The profit linked deduction available to the start-ups for three years out of five years is being changed to three years out of seven years. In view the fact that start-ups may take time to derive profit out of their business, this initiative have been proposed This move to enable startups, incorporated after 31 March 2016, avail of a three-year tax holiday in their first seven years is quite commendable.
For carry forward of losses, 51% holding requirement removed for startups
For the purpose of carry forward of losses in start-ups, the condition of continuous holding of 51 per cent of voting rights has been relaxed. However, this is subject to the condition that the holding of the original promoter/promoters continues.
This comes as a relief to startups as they do not make profits in the first few years of operations.
Taxmantra’s take on Budget 2017
This budget has more positives than negatives, wherein quite a few concerns are addressed. The reduction of corporate tax rates and overall rationalisation seem to be good. But, a lot needs to be done as far as brining startups / small businesses to the core of the economic activities, for instance, the problem of startup tax on domestic angel investors still persists.
Written by: Alok Patnia, Founder & CEO at Taxmantra.com