Union Budget 2023: Government extends the tax vacation for startups by one year
The period of incorporation for startups to receive income tax benefits was extended by Union Finance Minister Nirmala Sitharaman on Wednesday to March 31, 2024. Up to this point, startups that had been incorporated could take advantage of the tax break. Sitharaman has previously announced a similar extension to the startup tax holiday scheme for businesses founded after 2017.
During her Budget 2023-24 speech in the Parliament, the Finance Minister said, “I propose to extend the date of incorporation for income tax benefits to start-ups from 31.03.23 to 31.3.24. I further propose to provide the benefit of carry forward of losses on change of shareholding of start-ups from seven years of incorporation to ten years.”
According to Sitharaman, entrepreneurship is essential for a nation’s economic development. As a result, the government has implemented several start-up-friendly policies that have been successful. India currently has the third-largest startup ecosystem in the world and has the second-best innovation quality among middle-income nations.
In Budget 2020–21, the government proposed a 48-month taxation delay for employee stock option plans (ESOPs) and a three-year tax vacation that can be taken at any point in the first ten years rather than just the first seven. As long as their annual revenue doesn’t exceed Rs 25 crore in any financial year, Startups are eligible for a 100% tax discount on profits produced for three straight years out of the first ten years of incorporation under the programme.
India excels in a variety of technology, including IT. Startups play a significant role in India’s GDP growth as it moves closer to the $5 trillion economic target set by the government.
The government has made significant efforts to encourage the sector’s growth in this regard. The government started the Startup India initiative on January 16, 2016, with the goal of encouraging entrepreneurship and advancing innovation by establishing an environment that supports the development of nascent business owners.
The government established the Startup India Seed Fund Scheme (SISFS) and Fund of Funds for Startups (FFS) in order to give funding at various phases of a startup’s business cycle.
In April 2021, the Rs 945 crore Startup India Seed Fund Scheme (SISFS) was introduced. SISFS intends to offer startup businesses financial support for market access, product testing, prototype development, proof-of-concept, and commercialization.
According to the Budget documents, the funding for the Startup India initiative was boosted from the Revised Estimate of Rs 32.83 crore given in 2021–2022 to Rs 50 crore for 2022–2023 fiscal year.
In contrast to the revised projection of around Rs 100 crore from the previous budget of 2021–2022, the government allotted Rs 283.5 crore for the SISFS in the previous budget. The government allotted Rs 1,000 crore in the budget from last year’s spending plan to the Fund of Funds for Startups (FFS), which had a corpus of Rs 10,000 crore when it was established.
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