The Central Board of Direct Taxes (CBDT) clarified on Thursday that small start-ups with turnover up to Rs 25 crore will continue to get the promised tax holiday as specified in Section 80-IAC of the Income Tax Act 1961 which provides deduction for 100 per cent of income for three out of seven years from the year of incorporation.
It said a start-up recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) which fulfills the conditions specified in the DPIIT notification does not automatically become eligible for the deduction under Section 80-IAC of the I-T Act.
"It has to fulfill the conditions specified in Section 80-IAC for claiming this deduction," the CBDT said in a statement. "Therefore, the turnover limit for small start-ups claiming a deduction is to be determined by the provisions of Section 80-IAC of the I-T Act and not from the DPIIT notification."
The clarification is aimed at clearing confusion created by some reports claiming discrepancy that I-T law is yet to reflect DPIIT's higher turnover threshold of Rs 100 crore. The turnover limit for eligibility for deduction under section 80-IAC of the I-T Act as per the DPIIT's notification is also Rs 25 crore.
"It is pertinent to state here that Section 80-IAC was inserted vide Finance Act 2016 as an exception to the government's stated policy of phasing out a profit-linked deduction for promoting small start-up during their initial year of operation. As the intention was to support the small start-up, the turnover limit of Rs 25 crore is considered as reasonable for granting profit linking deduction," said the CBDT.
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