Parliamentary panel proposes tax incentives for startups

• 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.

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Mains Paper 3: Economy

Prelims level: Long-term capital gains

Mains level: Highlights about the parliamentary proposal regarding tax incentives for startups

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