Startups & Finance Bill 2023

Quick Summary Points of Finance Bill 2023

For the benefit of startups and micro, small and medium enterprises, we are outlining below, the key aspects discussed by the Finance Minister in the Budget speech yesterday: (points highlighted in yellow reflect the proposed amendments)

1. Startups incorporated before the April 1, 2024 (earlier incorporation date, April 1, 2023) will be eligible for income tax benefits.

(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, 2023, 1st day of April, 2024;

2. Benefit of carry forward of losses on change of shareholding of startups to be increased from 7 years of incorporation to 10 years vide changes to the proviso of Section 79(1).

Provided that even if the said condition is not satisfied in case of an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the previous year shall be allowed to be carried forward and set off against the income of the previous year if all the shareholders of such company who held shares carrying voting power on the last day of the year or years in which the loss was incurred, continue to hold those shares on the last day of such previous year and such loss has been incurred during the period of seven years ten years beginning from the year in which such company is incorporated.

3. Micro enterprises with turnover up to INR 3 crore (earlier INR 2 crore) can avail the benefit of presumptive taxation, to the taxpayers whose cash receipts are no more than 5 per cent.

Clause 16 of the Finance Bill seeks to amend section 44AD of the Income-tax Act relating to special provision for computing profits and gains of business on presumptive basis vide adding the following additional proviso after Clause (b) of Explanation of Section 44AD

(b) whose total turnover or gross receipts in the previous year does not exceed an amount of two crore rupees

Provided that an increased threshold limit of three crore rupees where the amount or aggregate of the amounts received by the eligible assessee during the previous year, in cash, does not exceed five per cent. of the total turnover or gross receipts of such previous year

Provided that the receipt of amount or aggregate of the amounts by a cheque drawn on a bank or by a bank draft, which is not account payee, shall be deemed to be the receipt in cash

4. Deduction for expenditure incurred by MSMEs on payments made to them only when payment is actually made by proposing the following language change in section 43B of the Income-tax Act, with effect from the 1st day of April, 2024,

(g) any sum payable by the assessee to the Indian Railways for the use of railway assets, or

(h) any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006

Provided that nothing contained in this section, [except the provisions of clause (h)] shall apply in relation to any sum which is actually paid by the assessee on or before the due date applicable in his case for furnishing the return of income under sub-section (1) of section 139 in respect of the previous year in which the liability to pay such sum was incurred as aforesaid and the evidence of such payment is furnished by the assessee along with such return

Explanation 4.—For the purposes of this section,—

(e) "deposit taking non-banking financial company" means a non-banking financial company which is accepting or holding public deposits and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934);

(e) “micro enterprise” shall have the meaning assigned to it in clause (h) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006

(g) "systemically important non-deposit taking non-banking financial company" means a non-banking financial company which is not accepting or holding public deposits and having total assets of not less than five hundred crore rupees as per the last audited balance sheet and is registered with the Reserve Bank of India under the provisions of the Reserve Bank of India Act, 1934 (2 of 1934).

(g) “small enterprise” shall have the meaning assigned to it in clause (m) of section 2 of the Micro, Small and Medium Enterprises Development Act, 2006

Other points from the Budget Speech

5. Establishing an ‘Agriculture Accelerator Fund’ to encourage agri startups by young entrepreneurs in real areas.

6. Open-Source digital public infrastructure to be built for agri tech startups

This has been compiled by Aditya Rao, a 3rd year student of NALSAR, Hyderabad.