The Union Budget 2023 has proposed a change that will have a significant impact on the Indian Startup ecosystem. The amendment to Section 79 of the Income Tax Act, 1961, proposes to extend the period for eligible startups to carry forward and set off losses incurred in the first 10 years of their incorporation. This change comes as a much-needed respite for startups who often face financial challenges in their initial years of operation.
Previously, companies that experience a change in their shareholding were not eligible to carry forward and set off losses from previous years unless 51 per cent of the voting power remained with the same shareholders. However, for eligible startups, these losses could only be carried forward and set off for a period of 7 years. The proposed amendment extends this period by three years, providing startups with a longer runway to recover and utilize their losses.
The extension of the period to 10 years has numerous benefits for startups. Firstly, the extended period will allow startups to reduce their taxable income and reduce their tax liability, providing them with more capital to reinvest in their business and plan their finances more effectively. This, in turn, will lead to improved cash flow management and financial planning, giving startups the stability, they need to grow and succeed.
Furthermore, startups with reduced tax liability will become more financially stable, increasing their creditworthiness, and making them more likely to secure loans and investments. This stability will provide a cushion for startups during their critical initial years of operations, thereby encouraging entrepreneurship and innovation in India.
The amendment to Section 79 of the Income Tax Act, 1961, is a testament to the government's commitment to supporting the startup ecosystem in India. The extended period of 10 years will provide startups with the support they need to navigate the challenges they face in their initial years of operation and lay a solid foundation for future growth.
In conclusion, the proposed amendment to extend the period for carry forward and set off of losses for startups is a step in the right direction. It will provide startups with better cash flow management, improved financial planning, and a longer runway to grow their business. This amendment will further boost the startup ecosystem in India, encouraging entrepreneurship and innovation in the country and setting the stage for a brighter future.
