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Indirect tax concessions needed to promote tech incubators
February, 27th 2013

Specific indirect tax concessions can promote entrepreneurship through creation of technology business incubators in PPP format. Start-up Village in Kochi is the ideal model, says Sherry Samuel Oommen, founder and senior partner, GyanMagnus Associates.

The Central Government may exempt an incubator from payment of customs duty on goods imported. Similarly, excise may be waived on goods supplied to incubator.

This would enable the incubator to procure assets freely and at reduced cost, Oommen told Business Line. In this manner, start-ups may access various facilities and services at reduced prices.

The incubator may be permitted to import goods on condition that these would actually be used, not sold or transferred. In case of violation, it can be asked to repay customs/excise duty calculated on transaction value or at a depreciated value of assets.


Exemption or refund of service tax paid on service provided by third parties to incubators and incubatees is another. Currently, service tax exemption is available with respect to services provided by incubator to incubatee and by incubatee to third parties for up to Rs 50 lakh.

But there is no exemption with respect to service received by either the incubator or incubatee. This results in a situation where the service tax paid on such services becomes an avoidable cost. Hence, granting an exemption or providing a refund would complement the current exemption.


The State Government may zero-rate VAT on goods supplied to the incubator or incubatee. This would reduce start-up costs for an incubatee and bring down its substantial financial burden.

Exemption from payment of VAT on sale or leasing of goods by incubator to incubate may also be considered. Explaining, Oommen said the incubator procures a lot of goods which would be either sold or leased to incubatees. In the absence of this, the exemption provided in the context of the service tax provisions would not be very effective.


The State Government may also waive payment of VAT on sale or licensing of software by incubatee to customers up to a turnover of Rs 50 lakh.

This would make customers/clients choose incubatees as there is saving of five per cent by choosing an incubatee company. This would also avoid the hassle of registration and compliance with VAT during the start-up phase.

Exemption from payment of stamp duty with respect to agreements with either incubator or incubate would cut costs, especially with respect to rent agreement.

The Government may also consider an exemption from payment of duty and surcharge on electricity charges, Oommen said.

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