Only 329 startups can claim tax holiday under Startup India

January 27, 2021
1 min read


Exactly five years since the launch of the Startup India program in January 2016, which aimed at several benefits for startups, not even a percent of the total registered startups can avail the benefits.

The government had in Budget 2020-21 announced the deferral of taxation on employee stock option plans (ESOPS) by 48 months, and allowed the tax holiday of 3 yrs anytime in the first 10 years instead of first seven years earlier. However, this is applicable only to startups that have received a certification from the Inter Ministerial Board set up under the Department for Promotion of Industry and Internal Trade (DPIIT) to approve such tax exemptions. So far only 329 have received the certification since the board was constituted in 2016, according to government sources.

CNBC-TV18 has also learnt that only 270 startups were in the waiting list for the IMB certification, signalling a low interest from the thousands of startups across the country.

Overall, 42,564 startups are DPIIT recognised as of January 25.

Industry members pointed to the restrictive criteria and the “subjective” evaluation by the board for the low numbers.

The exemptions are applicable to only startups registered after 2016, and while the government had in 2020 increased the turnover limit for eligible startups to Rs 100 crore from Rs 25 crore, many startups are still left out, Rameesh Kailasam, CEO, said.

Others also brought up the ‘mass rejections’ in the past by the IMB which has dissuaded many startups from applying.

“Many startups that I know were rejected early on in 2016 and 2017 because the IMB said that their products were not unique. The board has very subjective criteria,” said Siddarth Pai, founding partner of VC fund 3one4 Capital and co-chair for regulatory affairs at the Indian Private Equity and Venture Capital Association (IVCA).

However, senior DPIIT officials believe that the number will pick up in the coming years as more startups approach profitability and when they need to take the tax exemption.

“Right now, many startups may not be looking at profitability for the next few years and hence have not shown interest in applying for the exemptions as of now,” an official said, requesting anonymity.

“The IMB has to have strict criteria for evaluating startups since there should be no misuse of the tax benefits,” the official said.

DPIIT is also working on putting down stricter criteria even for startups looking to simply register with the department, which currently is done only through a self-declaration by the companies.

“We want to ensure that businesses that are simply in the business of trading, or were set up by an older company post-2016, or are subsidiaries of an MNC are not counted as DPIIT-recognised startups. This should only be for innovative, newly-formed companies,” the official added.

The new criteria could be soon added in the self-declaration form by companies looking to register.

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