Only 38 applications from startups were not given the benefit as their applications were incomplete.
The government is set to ease the norms to allow more startups to benefit from the provisions under the income tax law that allows 100 per cent deduction up to 100 per cent of the profits and gains.
The move follows encouraging signs from the government decision to simplify the rules for angel tax exemption, with 508 startups already benefiting.
Following repeated criticism, the government significantly eased the rules and allowed tax exemption for startups whose shares are subscribed at a hefty premium, which is in excess of the fair market value.
The income tax authorities were raising multiple questions and had issued notices, prompting the department for the promotion of industry and internal trade (DPIIT) and the finance ministry to remove impediments by simplifying the regime.
As a result, sources told TOI, only 38 applications from startups were not given the benefit as their applications were incomplete.
Updated regulations
Now, DPIIT has set its sights on section 80IAC of the income tax law as the benefits have flowed to only a handful of startups. The provision, drafted as part of the Startup India initiative, provides 100 per cent tax exemption on profits earned by eligible businesses for three consecutive assessment years out of seven years starting from the year in which the startup was incorporated.
Originally, the plan was to provide the exemption in a five-year block. But the rules were eased as investors complained that many of the companies may not be earning a profit during this period.
A startup certified by an inter-ministerial board is treated to be an eligible business for tax breaks if its business involves innovation, deployment, development or commercialisation of new products, services or processes driven by technology or intellectual property.
Sources said that the current provisions have been interpreted in a very strict manner, resulting in less than 100 startups being certified by the panel of officers from DPIIT and science and technology and biotech departments. The rules are now being reviewed and a simpler dispensation is being proposed.
