The finance ministry is learnt to have turned down a proposal of the department for the promotion of industry and internal trade (DPIIT) to extend the cutoff date for the incorporation of start-ups to be eligible for the income tax holiday by five years from April 2021. This has dashed hopes of industry executives who were eyeing extended tax relief to help proliferation of start-ups. Currently, start-ups that are incorporated between April 1, 2016, and March 31, 2021, are allowed to apply for the I-T relief and the eligible ones get it for a block of three out of the first 10 years.

The revenue department believes that in sync with the government’s policy objectives in recent years, the myriad exemptions need to be phased out and tax rates rationalised so that a much simpler and more efficient tax regime can be ushered in. Already, the cutoff date was once extended by two years through March 2021. In its proposal for the FY22 Budget, the DPIIT, however, wanted the relaxation to continue for another five years to enable a wider pool of start-ups to get the benefits, especially in the light of the Covid-19 pandemic.

Meanwhile, industry executives complain that only about a very tiny section of the start-ups has so far got the tax benefit, thanks to a “rigid” approval process. Usually, an inter-ministerial board (IMB) headed by a senior DPIIT official vets the applications and issues the eligibility certificates. Upon its clearance, start-ups get the benefits under Section 80-IAC of the I-T Act.