The new budget gives startups a 100% tax exemption for three years — but there’s a catch

Finance Minister Arun Jaitley has finally announced what the country’s 18,000 startups were waiting to hear:- Startups will get 100% tax exemption on profits made in any of the three years out of their first five years.

"I propose to assist (startups') propagation through 100% deduction of profits for three out of the five years for startups set up during April 2016 to March 2019," Finance Minister Jaitley said Monday announcing his Budget for 2016-17.

But they will unfortunately still have to pay the Minimum Alternate Tax (MAT).

A MAT is a way of making companies pay minimum amount of tax. It is applicable to all companies except those engaged in infrastructure and power sectors. Income arising from charitable activities, investments by venture capital companies is excluded from the purview of MAT, though foreign companies with income sources in India are liable under MAT.

Most of the experts believe this is more optical than practical as start-ups tend to focus less on profits in the first three years and more on growth, so whether this will be of any help to the start-ups is left to see.

Image credit: Indiatimes