100% deduction of profits for startups for 3 out of 5 years

29 February 2016

Finance minister Arun Jaitley said that startups generate employment, bring innovation and are expected to be key partners in Make in India programme. He proposed to assist startups through 100 per cent deduction of profits for three out of five years for those that are set-up during April 2016 to March 2019.

In such cases MAT will apply. However, capital gains will not be taxed if invested in regulated / notified Fund of Funds and by individuals in notified startups, in which they hold majority shares.

Jaitley also proposed a special patent regime with 10 per cent rate of tax of income from worldwide exploitation of patents developed and registered in India.

To get more investment in Asset Reconstruction Companies (ARCs), the finance minister proposed to provide a complete pass-through of income-tax to securitisation trusts including trusts of ARCs. He said that the income will be taxed in the hands of investors instead of the trust. However, the trust will be liable to deduct tax at source.

The period for getting benefit of long term capital gain regime in case of unlisted companies was proposed to be reduced from three to two years.

Jaitley also said that non-banking financial companies will be eligible for deduction to the extent of 5 per cent of their income in respect of provision for bad and doubtful debts. He reiterated the commitment to implement GAAR from 1 April 2017.

He also said that to meet the commitment to BEPS  [Base Erosion and Profit Shifting] initiative of OECD and G-20, the Finance Bill, 2016 includes provision for requirement of country by country reporting for companies with a consolidated revenue of more than 750 million.

He further proposed to exempt service tax on services provided under Deen Dayal Upadhyay Grameen Kaushalya Yojana and services provided by Assessing Bodies empanelled by ministry of skill development and entrepreneurship.

He also proposed to exempt service tax on general insurance services provided under 'Niramya' Health Insurance Scheme launched by National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disability.

Jaitley also proposed to extend nil basic customs duty to Braille paper.

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