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Indian startups with less than USD 3.5 million turnover exempted from paying income tax

Written by Avanish Tiwary Published on   2 mins read

An earlier notification had put the cap at USD 14 million

India’s Central Board of Direct Taxes (CBDT) said Thursday small companies with turnover of less than USD 3.5 million (Rs 25 crore) don’t have to pay income tax for any of the three years out of seven from the year of incorporation, extending the olive branch again to local startups in a move to clear concerns resulted from previous ambiguous rules.

This exemption is applicable to only those startups that are recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) and fulfil several conditions specified in Section 80-IAC for claiming this deduction.

In February this year, DPIIT had changed the definition of startups and considered a company as a startup if its turnover in any of their financial years since incorporation had not exceeded USD 14 million (Rs 100 crore).

It was earlier understood that all the startups with less than USD 14 million turnovers and recognized by DPIIT will be exempted from paying income tax, which CBDT clarified is not the case. Many founders consider the USD 3.5 million cap as a step down from government’s earlier promise.

The current notice is a follow-up remedy after startups realised DPIIT’s earlier announcement of giving tax breather to startups with turnover of less than USD 14 million wasn’t reflecting while filing taxes.

In a statement issued on Thursday, CBDT said, “Turnover limit for small startups claiming deduction is to be determined by the provisions of Section 80-IAC of the I-T Act, and not from the DPIIT notification.” According to the statement, only “eligible” startups can avail of the tax exemption, which is subject to certain conditions. “It has been clearly mentioned that a startup shall be eligible to apply for the certificate from the Inter-Ministerial Board of Certification for claiming deduction under Section 80-IAC of the Income-Tax Act, only if the startup fulfils the conditions specified.”

According to CBDT, the turnover limit of USD 3.5 million is set to ensure only small startups are provided the support they need.


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