The Union Budget 2022 has extended the sunset date for the incorporation of start-up business under section 80-IAC of the Income-tax Act, 1961 (‘Act’) by a year from 31st March 2022 to 31st March 2023.
Finance Minister’s Speech on Extension of Date under section 80-IAC
While presenting the Union Budget 2022, Finance Minister has announced incentives for start-ups. She stated that the start-ups have emerged as drivers of growth for our economy. Over the past few years, the country had seen a manifold increase in successful start-ups. Eligible start-ups established before 31.3.2022 had been provided with a tax incentive for three consecutive years out of ten years from incorporation.
In view of the Covid pandemic, she proposed to extend the period of incorporation of the eligible start-up by one more year, that is, up to 31.03.2023 for providing such tax incentive.
Extract of the Provisions of Section 80-IAC
Section 80-IAC of the Act inter alia, provide for a deduction of an amount equal to 100% of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assesses subject to the condition that,-
(i) the total turnover of its business does not exceed one hundred crore rupees,
(ii) it is holding a certificate of eligible business from the Inter-Ministerial Board of Certification, and
(iii) it is incorporated on or after 1st day of April, 2016 but before 1st day of April 2022.
Proposed Amendment to Section 80-IAC
It is proposed to amend the provisions of section 80-IAC of the Act to extend the period of incorporation of eligible start-ups to 31st March, 2023.
For this purpose, Clause 22 of the Finance Bill, 2022 proposed to amend section 80-IAC in the following manner-
Amendment of section 80-IAC.
22. In section 80-IAC of the Income-tax Act, in the Explanation below sub-section (4), in clause (ii), in sub-clause (a), for the figures “2022”, the figures “2023” shall be substituted.
Explaining the proposed amendment to section 115BAB
Clause 22 seeks to amend section 80-IAC of the Act relating to special provision in respect of specified business.
The provisions of the said section, inter alia, provide for a deduction of an amount equal to one hundred per cent. of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of ten years, beginning from the year of incorporation, at the option of the assesses subject to the condition that,–
(i) the total turnover of its business does not exceed one hundred crore rupees;
(ii) it is holding a certificate of eligible business from the Inter-Ministerial Board of Certification; and
(iii) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April 2022.
It is proposed to amend sub-clause (a) of clause (ii) of the Explanation occurring after sub-section (4) of the said section so as to extend the period of incorporation of eligible start-ups to the 1st day of April, 2023.
This amendment will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Stated Rationale for the proposed amendment
The Explanatory Memorandum states that due to COVID pandemic there have been delays in setting up of such units. In order to factor in such delays and promote such eligible start-ups, it is proposed to amend the provisions of section 80-IAC of the Act to extend the period of incorporation of eligible start-ups to 31st March, 2023.
Concluding Remarks
With this extension, eligible start-ups get an extension of one more year to incorporate till FY 2022-23. However, this is not the first time that extension is given. Earlier also extensions were given on the incorporation date.
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