Proposed Amendments to Startups in the Finance Bill 2020

*This article is authored by Ms. Sharon Sapru, a final year student at the School of Excellence in Law, Tamil Nadu Dr. Ambedkar Law University. LEGAL PROVISIONBEFORE FINANCE BILL 2020  AFTER FINANCE BILL 2020WHEN IS IT EFFECTIVE?Section 80-IAC of Income Tax ActSection 80-IAC. Special provision in respect of specified business.

(1) Where the gross total income of an assessee, being an eligible start- up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for three consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of seven years beginning from the year in which the eligible start-up is incorporated.

Explanation:

When calculation of total income, there shall be allowed a deduction of an amount equal to hundred percent of the profits and gains derived from an eligible business by an eligible start-up for three consecutive assessment years out of seven years at the option of the assessee.In section 80-IAC of the Income-tax Act, with effect from the 1st day of April, 2021 (i) in sub-section (2), for the word “seven”, the word “ten” shall be substituted;

Explanation:

Period of deduction of seven years has been substituted with ten yearsFrom 1st April, 2021Section 80-IAC of Income Tax Act

Section 80-IAC. Special provision in respect of specified business.

Explanation.—For the purposes of this section, (ii) “eligible start-up” means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—

 (a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2021;

 (b) the total turnover of its business does not exceed twenty-five crore rupees in the previous year relevant to the assessment year for which deduction under sub-section (1) is claimed; and

(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;

In section 80-IAC of the Income-tax Act, with effect from the 1st day of April, 2021, in the Explanation, in clause (ii), in sub-clause (b), for the word “twenty-five”, the words “one hundred” shall be substituted.

Explanation:

The total turnover for a company or for a limited liability partnership engaged in eligible business to be considered as an eligible startup has been increased from Rs. 25 crore to Rs. 100 crore.From 1st April, 2021Section 156 of Income Tax Act

Section 156. Notice of demand.

When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable :

Provided that where any sum is determined to be payable by the assessee or the deductor or the collector under sub-section (1) of section 143 or sub-section (1) of section 200A or sub-section (1) of section 206CB, the intimation under those sub-sections shall be deemed to be a notice of demand for the purposes of this section. Explanation: When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in such form, as may be provided by rules, specifying the sum so payable.

Proviso: Intimation of sum payable under S. 143(1), S. 200A(1), 206CB(1) shall be deemed to be a notice of demand for the purposes of this section.

Section 156 of the Income-tax Act shall be renumbered as sub-section (1) thereof and after sub-section (1) as so renumbered, the following sub-section shall be inserted, namely:-

(2) Where the income of the assessee of any assessment year, beginning on or after the 1st day of April, 2021, includes income of the nature specified in clause (vi) of sub-section (2) of section 17 and such specified security or sweat equity shares referred to in the said clause are allotted or transferred directly or indirectly by the current employer, being an eligible start-up referred to in section 80-IAC, the tax or interest on such income included in the notice of demand referred to in sub-section (1) shall be payable by the assessee within fourteen days–– (i) after the expiry of forty-eight months from the end of the relevant assessment year; or (ii) from the date of the sale of such specified security or sweat equity share by the assessee; or (iii) from the date of the assessee ceasing to be the employee of the employer who allotted or transferred him such specified security or sweat equity share, whichever is the earliest.

Explanation: Where the income of the assessee of any assessment year, beginning on or after the 1st day of April, 2021, includes security or sweat equity shares (u/S.17(2)(vi)) which are allotted or transferred directly or indirectly by an eligible start-up (ref to in S. 80-IAC), then the tax or interest on such income included in the notice of demand shall be payable by the assessee within fourteen days––

i) After the expiry of 48 months from the end of the relevant assessment year;

ii) from the date of the sale of such specified security or sweat equity share by the assessee, or

ii)  from the date of the assessee ceasing to be the employee of the employer who allotted or transferred him such specified security or sweat equity share, whichever is the earliest.

Note: S.17(2)(vi) refers to perquisite which includes the value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.

From 1st April, 2020Section 191 of the Income Tax ActSection 191. Direct Payment.

In the case of income in respect of which provision is not made under this Chapter for deducting income-tax at the time of payment, and in any case where income-tax has not been deducted in accordance with the provisions of this Chapter, income-tax shall be payable by the assessee direct.

Explanation.—For the removal of doubts, it is hereby declared that if any person including the principal officer of a company,—

(a)  who is required to deduct any sum in accordance with the provisions of this Act; or

(b)  referred to in sub-section (1A) of section 192, being an employer,

does not deduct, or after so deducting fails to pay, or does not pay, the whole or any part of the tax, as required by or under this Act, and where the assessee has also failed to pay such tax directly, then, such person shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default within the meaning of sub-section (1) of section 201, in respect of such tax.

It shall be renumbered as sub-section (1) thereof and after sub-section (1) as so renumbered, the following sub-section shall be inserted, namely:

“(2) For the purposes of paying income-tax directly by the assessee under sub-section (1), if the income of the assessee in any assessment year, beginning on or after the 1st day of April, 2021, includes income of the nature specified in clause (vi) of sub-section (2) of section 17 and such specified security or sweat equity shares referred to in the said clause are allotted or transferred directly or indirectly by the current employer, being an eligible start-up referred to in section 80-IAC, the income-tax on such income shall be payable by the assessee within fourteen days– (i) after the expiry of forty-eight months from the end of the relevant assessment year; or (ii) from the date of the sale of such specified security or sweat equity share by the assessee; or (iii) from the date of the assessee ceasing to be the employee of the employer who allotted or transferred him such specified security or sweat equity share, whichever is the earliest.”

From 1st April, 2020Section 192 of the Income Tax ActSection 192. Salary.

(1) Any person responsible for paying any income chargeable under the head “Salaries” shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.

In section 192 of the Income-tax Act, after sub-section (1B), the following sub-section shall be inserted, namely:––

“(1C) For the purposes of deducting or paying tax under sub-section (1) or sub-section (1A), as the case may be, a person, being an eligible start-up referred to in section 80-IAC, responsible for paying any income to the assessee being perquisite of the nature specified in clause (vi) of sub-section (2) of section 17 in any previous year relevant to the assessment year, beginning on or after the 1st day of April, 2021, shall deduct or pay, as the case may be, tax on such income within fourteen days– (i) after the expiry of forty-eight months from the end of the relevant assessment year; or (ii) from the date of the sale of such specified security or sweat equity share by the assessee; or (iii) from the date of the assessee ceasing to be the employee of the person, whichever is the earliest, on the basis of rates in force for the financial year in which the said specified security or sweat equity share is allotted or transferred.

From 1st April, 2020.