Budget 2019: Sitharaman extends capital gains benefits for entrepreneurs

Entrepreneurs who plan to sell their houses to fund their start-ups will remain shielded from paying tax on the gains made through sale of the property. Finance Minister Nirmala Sitharaman on Thursday announced an extension of benefits provided under Section 54GB of the Income-Tax Act for a period of two years.

The government had introduced Section 54GB in FY13 wherein if an individual sold his/her house and invested the entire proceeds (not just the gains) in a start-up, he/she would not require to pay any capital gains tax. The benefit extended under this Section was earlier available only until March 31, 2019, but the finance minister has now extended the provision until March 31, 2021. The amendment would be applicable retrospectively from April 1, 2019. 

Also, the Section has been made less stringent, making it relatively relevant. Earlier, the norms prescribed that the individual had to hold a minimum of 50 per cent of share capital in the start-up and voting rights. The limits have now been brought down to 25 per cent for both — shareholding as well as voting rights. "It's usually the promoter who holds such a major portion of share in a company. Investors usually wouldn't get to hold 50 per cent of the shares in a company," said Suresh Surana, founder, RSM Astute Consulting Group.

Once the taxpayer took the benefit available under Section 54GB, he/she had to maintain the 50 per cent shareholding for up to five years and was not allowed to transfer assets of the start-up during this period. Now, the entrepreneur is allowed to transfer the assets if they are computers or software in three years. "In a start-up dealing with technology, five-year is a long period. The amendments made will enable an entrepreneur to monetise his business assets quickly," says Surana. However, assets such as plants and machinery will still be required to be held for five years.