• A parliamentary panel has recommended abolition of long-term capital gains (LTCG) tax for investment in start-ups, besides other tax incentives, to encourage investments during the pandemic period.
• Covid-19 pandemic caused significant demand contraction, disrupted supply chains and has stalled investment.
• LTCG Tax is levied on the profit generated by an asset such as real estate and shares, which is held for a long time period.
An entity is considered a startup in India if it fulfils following conditions:
• Entity Type: Incorporated as a private limited company or Registered as a partnership firm or as a limited liability partnership in India.
• Age: 10 years from date of incorporation.
• Turnover: Must not exceed one hundred crore rupees in any fiscal year.
• Nature of Activity: Innovation, Development or improvement of products or processes or services, Scalability, Job creation and Wealth Creation.
Some Tax Exemptions to Startups:
• To eligible for full deduction on the profits and gains from business.
• To exemption from tax on LTCG if such long-term capital gain is invested in a fund notified by Central Government.
Mains Paper 3: Economy
Prelims level: Long-term capital gains
Mains level: Highlights about the parliamentary proposal regarding tax incentives for startups