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February 01, 2017

Budget 2017- The Key Initiatives Affecting Start-ups - Analysis by Economic Laws Practice

An analysis by

The Finance Minister on February 1 presented to the union budget for the financial year 2017-2018. The budget offered the following concessions to the start-ups:

1. Extension to the Period of Tax Break 

 Presently an eligible start-up is allowed a deduction of the entire amount of the profits and gains derived from eligible business for three consecutive assessment years out of five years beginning from the year in which such eligible start-up is incorporated. However, keeping in mind the time taken to derive profits by start-ups, it proposed that an eligible start-up can avail the tax break for any three consecutive assessment years out of seven years beginning from the year in which such eligible start-up is incorporated.

2. Carry Forward of Losses 

Presently a company, not being a company in which public are substantially interested, cannot carry forward its losses, unless it has continuous holding of more than 51% (fifty one) percent of the company. Now it is proposed that the eligible start-ups can carry forward losses and set off against the income of the previous year, even if the continuous holding of the company has fallen below 51% (fifty one) percent, if all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred continue to hold those shares on the last day of such previous year. This exemption is proposed for the eligible start-ups if the loss has been incurred during the period of seven years beginning from the year in which such eligible start-up is incorporated.

3. Carry Forward of MAT Credit 

The Finance Bill 2017 has further proposed to extend the period for carry forward of Minimum Alternate Tax (MAT) credit to fifteen years as opposed to the present period of ten years. In addition to the above, the Finance Minister in his budget speech has also proposed following amendments to: 

(i) the existing labour laws and has proposed to form them into four codes on (i) wages, (ii) industrial relations, (iii) social security and welfare, and (iv) safety and working conditions; and

(ii) the Companies Act, 2013 to remove difficulties and impediments to the ease of doing business. 

The above exemptions proposed for the start-ups and the proposed amendments to the labour and company laws are definitely encouraging and will provide the much needed impetus to the growth of the start-up industry.

Authors: Darshan Upadhyay - Partner and Amruta Kelkar - Senior Associate

Economic Laws Practice ("ELP") is a leading full-service Indian law firm established in the year 2001 by eminent lawyers from diverse fields. The firm’s Private Equity & Venture Capital practice brings onboard a unique understanding of commercial matters and legalese to be able to provide effective solutions to all stakeholders in a transaction. The team looks at providing a bespoke legal service experience, which is sector agnostic in nature and driven towards successful consummation of the relevant transactions.

ELP advises clients on all aspects of private equity and venture capital transactions, whether from a fund formation perspective or a potential portfolio investment or a relevant exit transaction. Our services include right from conceptualising a structure, to conducting the legal due diligence exercise, to the preparation of the relevant documentation, to providing assistance to the final closure including negotiations and corporate secretarial assistance.

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