The MeitY has recommended that fiscal incentives of income tax exemption under section 10A of the Income Tax Act be restored for new STP units with annual turnover less than Rs 25 crore, or for a period of five years, whichever is earlier.

Income tax exemptions for new units under the software technology park (STP) scheme and harmonisation of tax rates for angel investors have figured in the key recommendations by the Ministry of Electronics and Information Technology (MeitY) for promoting start-ups related to technology through decisions to be taken in the upcoming Union Budget 2017-18, a senior government official told The Indian Express.

“The small companies and start-ups with small levels of operations find it difficult to move into IT SEZ due to high establishment and recurring cost for availing tax benefits under SEZ. With the withdrawal of fiscal benefits for STP units from April 1, 2011, the competitiveness of IT-ITES units, especially SMEs has been adversely impacted,” the official said.
Budget 2017 Expectations: Taxes

The MeitY has recommended that fiscal incentives of income tax exemption under section 10A of the Income Tax Act be restored for new STP units with annual turnover less than Rs 25 crore, or for a period of five years, whichever is earlier. A sunset clause of three years, that is up to March 31, 2020, has also been suggested.

“Considering the increasing international competition and low entry barriers for setting up IT units, it is crucial that the finance ministry supports the IT industry through adequate incentives and create and ecosystem for growth of small and medium enterprises along with their increased penetration in the Tier II / Tier III cities and creation of additional employment opportunities,” the official said.

Furthermore, the ministry has sought alignment of long terms capital gains tax for angel investors investing in early stage start-ups with that applicable for publicly listed companies. Similarly a 15 per cent short term capital gains tax is recommended for angel investors for their investments in early stage companies instead of the prevalent practice of the rate applicable according to the income tax slab of the assessee.

The MeitY has also sought continuation of the current depreciation rate of 60 per cent applicable for computers and software, compared with the 40 per cent cap applicable from 2017-18, as per the Finance Act, 2016.
“Higher rate of depreciation will enable companies to re-invest in assets at a faster rate. Also, a high rate of depreciation will boost investment in the sector,” the official said.