Expert view: Budget 2019 tax implications for startups

Budget 2019 has several good news for startups. In her first budget speech, Finance Minister Nirmala Sitharaman said, "My tax proposals will aim to stimulate growth, incentivise affordable housing, and encourage start-ups by releasing entrepreneurial spirits. It will also be geared towards promoting digital economy.  I aim to simplify tax administration and bring greater transparency."

Commenting on Sitharaman's proposals for startups, Gaurav Chadha, tax partner, Ernst & Young, "The numerous amendments proposed by the Hon’ble Finance Minister in the Finance Bill 2019 and tax policy road map provided in the budget speech confirms government’s agenda of providing a conducive environment to start-ups and raising India’s ranking in ease of doing business index. 

Implications: According to Chadha, "eligible start-ups can now carry forward of losses where shareholders beneficially continue to hold 51% shareholding or voting power. Period for investment of capital gains tax in eligible startups extended from March 31, 2019 to March 31, 2021, also now only 25% investment in shareholding is sufficient to claim exemption.”

Startups also look set to get relief in ongoing tax audits. Chadha said “Tax Amendments Proposed in Finance Bill 2019 - Investment by Alternate Investment Funds (Category II) exempted from the rigours of ‘Angel tax’. Start-ups are likely to get relief in ongoing tax audits, as for carrying enquiry or verification now tax officer required to obtain approval from supervisory officer. For providing relief from ‘angel tax’, identity of investor and source of investment in eligible startup to be resolved by e-verification mechanism.”