The Centre announced on Wednesday that the tax holiday scheme for startups will be extended until March 31, 2024, which means that startups formed by the end of next year will be eligible for tax breaks.
Previously, the tax holiday scheme was available to startups formed until March 31, 2023.
"We propose to extend the date of incorporation for income tax benefits startups from 31.3.2023 to 31.3.2024. I further propose to provide the benefit of carry forward of losses on change of shareholding of startups from seven years of incorporation to 10 years," said Finance Minister Nirmala Sitharaman.
The government announced in the 2017 Union Budget for the first time that startups incorporated after March 31, 2016 could benefit from a tax holiday for three out of seven years from the date of incorporation, provided that annual turnover does not exceed Rs 25 crore in any fiscal year.
The extension of the tax benefit deadline, according to Anuj Parekh, CEO and Co-Founder of Healthysure, is a positive step for the startup ecosystem.
Sitharaman also increased the benefit of carrying forward losses on changes in shareholding in startups to ten years from seven years.
"The amendment to set off losses for 10 years is another positive as it is difficult for disruptive and tech startups to be profitable at the get-go especially if they are catering to India's billion Internet users," he said.
According to Prakhar Pandey, Founder and CEO of Moolaah, these steps will boost entrepreneurship across the country, resulting in more jobs.
"With India's current startup ecosystem and a lack of funding across stages of growth, a few of these steps may help domestic and foreign investors place a larger bet on good quality startups," he added.
Following the Economic Survey for 2022-23, which was released this week, more than nine lakh direct jobs have been created by DPIIT-recognized startups, with a significant 64% increase in 2022.
According to the survey, the country's number of recognised startups has increased from 452 in 2016 to 84,012 in 2022.
"About 48 per cent of our startups are from Tier II and III cities, a testimony of our grassroots' tremendous potential," read the Economic Survey.
Subodh Garg, CFO, Cashify, said that since the launch of the Startup India initiative in 2016, the government has taken numerous steps to establish India as a hub for startups.
"The extension of the period of carry forward of losses on change of shareholding of startups from seven years of incorporation to 10 years is another measure that will help foster the growth of the startup industry and drive innovation in the country," said Garg.