In a major boost for startups, Union Finance Minister Nirmala Sitharaman has announced extension of tax incentives by another year, till March 31, 2023. The Union government had extended the eligibility for claiming tax holidays last year for startups till March 31, 2022. In view of the COVID-19 pandemic, tax incentives offered to startups for the first three years of their incorporation by the government have been extended by another year.

“Startups have emerged as drivers of growth for our economy. Over the past few years, the country has seen a manifold increase in successful startups. Eligible startups established before 31.3.2022 had been provided a tax incentive for three consecutive years out of ten years from incorporation. In view of the Covid pandemic, I propose to extend the period of incorporation of the eligible startup by one more year, that is, up to 31.03.2023 for providing such tax incentive,” Nirmala Sitharaman said.

In addition, Sitharaman said that an expert committee will be set up to examine and suggest appropriate measures for boosting venture capital and private equity investments for startups. “Venture Capital and Private Equity invested more than Rs 5.5 lakh crore last year facilitating one of the largest startup and growth ecosystems. Scaling up this investment requires a holistic examination of regulatory and other functions,” she said.

In another measure to boost startups, the Finance Minister announced that startups will be promoted to facilitate ‘Drone Shakti’ through varied applications and for Drone-As-A-Service (DrAAS). “In select ITIs, in all states, the required courses for skilling will be started”.

According to the Economic Survey released on Monday, India has a total of 61,400 startups that are recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) and 14,000 of them have been added in the last fiscal year.

Welcoming the step, Gaurav Chadha, Business Tax Partner, EY India said, “Given the extension, the sector will see more eligible startups getting incorporated in the upcoming financial year. Further, capping of surcharge on long term capital gains on sale of unlisted equity shares (from graded surcharge up to 37% to 15%) will reduce the effective long term capital gains tax rate from 28.49 per cent to 23.92 per cent in the hands of investors, founders and founding team members.”