In what could be a morale booster for start-ups, the government has decided to do away with the practice of rejecting applications for tax sops.

Instead, start-ups will get an opportunity to apply again after making changes to the proposal based on the explanation given to them on the initial one.

Supportive policy

The Department of Industrial Policy and Promotion is also re-working the qualification criteria for start-ups for non-tax benefits, a government official told.

“Instead of dismissing proposals that do not meet the mark for tax-sops with a simple ‘rejected’, the inter-ministerial group examining it will give details of where they fell short. This will give the start-ups an opportunity to re-work their proposals, and apply again for tax benefits,” the official said.

“There has been no change in the criteria of judging whether a start-up qualifies for tax benefits. It still depends on how innovative the idea is.”

In the last meeting of the Inter-Ministerial Group (IMG) on start-ups which met on May 1, about a dozen applications were approved.

The change in the Central government’s stance has been triggered by a general sense of dissatisfaction among start-ups with the new policy, as only about 10 proposals had qualified for tax sops till last month out of the 140 proposals vetted by the inter-ministerial group since the policy was announced in 2016.

“The DIPP has decided to be a bit more empathetic while dealing with start-ups. After all, what good are tax sops if very few are able to benefit from it,” the official said.

The 130 applicants for tax applications, who were rejected over 2016, will also get a detailed note on why their cases did not pass the test. As per the existing rules, start-ups (companies and Limited Liability Partnerships or LLPs) can get income tax exemption for three years in a block of seven years, if they are incorporated between April 1, 2016 and March 31, 2019.

Expanding definition

An IMG, including officials from the Department of Bio-technology, Department of Science and Technology and the DIPP, examine the proposals on the basis of innovation and use, and determine whether they qualify for tax sops or not.

“An official from the Ministry of Electronics, IT and Technology has been added to the IMG from May 1,” the official said.

DIPP will come up with a new set of rules over the next few weeks, tweaking the definition of a start-up that will result in more companies and LLPs coming under in the category.

Source: The Hindu Business Line