Budget Impact on Startups and E- Commerce Sector

This year’s budget turned out to be in line with the government’s vision and policies so far. The announcements regarding the startups impacted it both directly and indirectly. Here are the top announcements concerning startups:

Tax break
The time period of profit-linked deductions available to the startups has been increased to 7 years from the current 5 years. However, the tax breaks are still available on the profits made by startups for three years.

Minimum alternative tax
The startups requested to remove the Minimum Alternative Tax (MAT) but instead of removing it, the finance minister has announced that the companies can carry forward their MAT to 15 years from the present period of 5 years.

Income tax benefits for the MSMEs
Companies with an annual turnover of up to Rs 50 Crore, the tax have been reduced by 5%. This will benefit 96% of companies in India.

Carry forward of losses
Section 79 of the income tax act allows carry forward of losses of a company for seven years and then set off against profit of future years. Now, the government has allowed the carry forward of the losses even if the majority of the shareholding has changed hands. This was not the case earlier.

No capital gains on conversion of preferences shares to equity shares
Earlier the conversion of preferences shares to equity shares was considered as a transfer. This conversion thus attracted capital gains tax. Now, it won’t be considered as a transfer thus giving a big relief to the startup investors who prefer buying convertible preference share.

Penalty for late filings of income tax returns
The government has now prescribed a late filing fee of Rs 5,000 for delay up to December 31 and Rs 10,000 for further delay. However, the penalty has been limited to Rs 1000 in cases where the taxable income is up to Rs 5 Lakh. This will indirectly impact the startups.

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