Income Tax 24 Jan,2020
Start-up Expectations from Union Budget 2020 – Part I
Geetanshu BhallaChartered Accountant

Start-up Scheme of Indian Govt. is not only ineffective in terms of promoting the start up culture in India or promoting the New graduates for selecting their career as Entrepreneur but also suffered with non- transparency in approving the application of eligible firm u/s 80-IAC of the Income tax Act, 1961. There should not be any doubt that Indian entrepreneurs and the start-ups are the only one who can push the economy back on track at the shortest time. Accordingly, creating start up friendly atmosphere should be on the top most priority of the govt. Author, in this series of articles, highlight the main issues faced by the start-up and his recommendation for the solution.

1. Liquidity

Liquidity is the one of the biggest issues which is faced by every start up in India. Merely providing three years income tax deduction does not help the start up in any way. Following are few recommendations to reduce the liquidity issue for the start-ups

a. TDS

TDS is required to be deducted on the payments to start-up even if it is eligible to get deduction u/s 80-IAC of Income tax Act, 1961 ('the Act'). Accordingly, their liquidity issue is not solved even after getting eligible under the said section.

Furthermore, the start-ups cannot go to AO for no deduction certificate u/s section 197 of the Act as start- ups usually do not have the details of payee at the time of filing application us/ 197 of the Act.


 i.   Amend section 197A specially to include all the payments to start up eligible u/s 80-IAC.

 ii.   Amend TDS returns accordingly.

b. Advance Tax

Start up is the enterprise having some unique product or service and the new entrant in the developing industry and accordingly, expecting them to calculate or project their income for the computation of income tax at the very beginning of the year is quite impossible task for them. Thus, charging interest @3% per quarter (which is above the market rate) from them merely for the reason that their projection for the computation of advance tax liability is not within the prescribed tolerable limits causes undue harassment to them.

Please be noted that it includes all start up recognised by DPIIT irrespective whether they are eligible for deduction u/s 80-IAC of the Act or not.


 i.   Ask DPIIT to maintain and share the PAN records of all start up recognized by them with Income tax department.

 ii.   Amend 234C to exclude its applicability on start-ups recognized by DPIIT.

C. Goods and Service Tax

The GST is required to be deposited with the Govt. exchequer by the 20th day following the month in which invoice is raised or good delivered or service completed, as the case may be, irrespective of the fact that whether the taxpayer receive the GST amount from their customers till said date or not within the due date. This causes liquidity crunch with the start -ups.

It is worthwhile to mention that the credit period is generally allowed on the business to business transactions, more precisely, on the transaction with established business houses which enjoys negotiation powers. Accordingly, not allowing the credit period to the well-established business houses is not the option for the start-ups.


 i.   Insert a new provision to provides that registered business entities are required to deposit the GST amount on reverse charge basis on the goods or services supplied by the DPIIT registered start-ups. Thereby, start-ups will not have to deposit the GST amount out of their own pocket and get their liquidity problem solved to the great extent.

 ii.   Amend GST Returns accordingly.