In order to provide hassle-free tax environment to the Start-ups and boost the overall eco-system, series of announcements have been made by Hon’ble Finance Minister in her Budget Speech of 2019 and on 23rd August, 2019. To give effect to these announcements, Central Board of Direct Taxes (CBDT) has been issuing various circulars/clarifications in this regard.
Vide Circular No.22/2019 dated 30.08.2019, CBDT has consolidated all circulars/clarifications issued on this subject for the ease of compliance of Start-up entities.
- Simplification of process for assessment of Start-ups: Circular No. 16/2019 dated 7th of August, 2019 provided for simplified procedure of assessment of Start-ups recognized by DPIIT. The circular covered cases under “limited scrutiny”, cases where multiple issues including issue of section 56(2)(viib) were involved or cases where Form No.2 was not filed by the Start-up entity. Detailed process of obtaining mandatory approval of the supervisory authorities for conducting enquiry was also laid down by this circular. NASSCOM’s policy brief on the circular can be accessed from https://community.nasscom.in/communities/policy-advocacy/cbdt-clarification-on-start-up-companies-assessment-involving-sec-562viib-issue.html
- Time limit for Completion of pending assessments of Start-ups: All cases involving “limited scrutiny” have to be completed by 30th September, 2019 and the other cases of Start-ups were required to be disposed off on priority, preferably by 31st October, 2019.
- Procedure for addition made u/s 56(2)(viib) in past assessments: Vide clarification issued on 9th August,2019, it was provided that provisions of section 56(2)(viib) of the Income Tax Act would not be applicable in respect of assessment made before 19th February, 2019 if a recognised Start-up had filed declaration in Form No. 2. The timelines for disposal of appeals before CIT(Appeals) was also specified. Further, additions made under section 56(2)(viib) would also not be pressed in further appeal.
- Income-tax demand: It has been reiterated time and again by CBDT that outstanding income-tax demand relating to additions made under section 56(2)(viib) would not be pursued and no communication in respect of outstanding demand would be made with the Start-up entity. Other income-tax demand of the Start-ups would not be pursued unless the demand was confirmed by ITAT.
- Constitution of Start-up Cell: Vide order dated 30.08.2019, CBDT has constituted a Start-up Cell under the aegis of Member(IT&C), CBDT to redress grievances and to address various tax related issues in the cases of Start-ups. Grievances can also be filed online at firstname.lastname@example.org
All these notifications demonstrate that the government is committed to provide impetuts to startup eco-system. This will be a booster for the Indian startup ecosystem as the policy was clearly designed to encourage entrepreneurial fervor in the country.