The Govt. has recently announced a 3 year tax break for startups as part of DIPP Action Plan for startups. In this post, I point out the well-known landmines that the draftsmen need to avoid:
1. Will the income 'not be included in computation', or will it be 'deducted'?
Income Tax Act may codify a tax break as an exclusion or a deduction. A typical startup will suffer losses in the initial years. If income is excluded from computation, this means that the loss (which is negative income) will not be available for set off against future profits. In Section 10A (exemption for Software tech parks, etc), the law was amended to replace exclusions with 'deductions' which do not deny carry forward and set off.
1. Will the income 'not be included in computation', or will it be 'deducted'?
Income Tax Act may codify a tax break as an exclusion or a deduction. A typical startup will suffer losses in the initial years. If income is excluded from computation, this means that the loss (which is negative income) will not be available for set off against future profits. In Section 10A (exemption for Software tech parks, etc), the law was amended to replace exclusions with 'deductions' which do not deny carry forward and set off.
