Tax Exemption on Capital Gains : Start-up

Prime Minister Narendra Modi unveiled government’s Start-up India policy at an event held in Vigyan Bhawan, New Delhi on January 16, 2016. The Action Plan aims to promote investments into Startups by mobilizing the capital gains arising from sale of capital assets i.e. Tax Exemption on Capital Gains.

Due to their high risk nature, Startups are not able to attract investment in their initial stage. It is therefore important that suitable incentives are provided to investors for investing in the Startup ecosystem. With this objective, exemption shall be given to persons who have capital gains during the year, if they have invested such capital gains in the Fund of Funds recognized by the Government. This will augment the funds available to various VCs/AIFs for investment in Startups.

In addition, existing capital gain tax exemption for investment in newly formed manufacturing MSMEs by individuals shall be extended to all Startups. Currently, such an entity needs to purchase “new assets” with the capital gain received to avail such an exemption. Investment in ‘computer or computer software’ (as used in core business activity) shall also be considered as purchase of ‘new assets’ in order to promote technology driven Startups.

Source:-Startup India: Action Plan

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