Capital Gains Tax Abolished on Startup Equity Held For 2+ Years #StartupReforms

By Mohul Ghosh Last updated May 9, 2016

For those companies and startups which are unlisted in any stock exchange, there exists a special ‘capital gains’ tax of 20%, which is charged, even if they are being held for more than 3 years. If we compared with listed companies, then they don’t have to pay any capital gains tax after holding shares for 12 months.

It was a big disadvantage for new startups as they were need to pay an additional tax, without any logical reason.

Govt. of India understood this issue, and has decided to give a big relief to startups by abolishing this particular tax.

In one of the major decisions, Indian Govt. has made a slight change to the Finance Bill, which will exempt all startups from paying any capital gains tax after holding shares for more than two years. Foreign investors and VCs would rejoice on this news, as they will be now able to book more profits and pay less tax.

Hence, we can expect more investment from foreign investors in coming days.

Note here, that during Union Budget announcement this year, Finance Minister Arun Jaitley had reduced the tenure of capital gains tax for foreign VCs from three to two years. And, now, this tax has been abolished after the holding period of 2 years.

Other Changes In Financial Bill

This major respite for startups was introduced by FM Arun Jaitley at Lok Sabha, wherein two other changes in the Finance Bill was introduced:

a) Buyers will now need to pay 1% tax on all new cars costing above Rs 10 lakh (to stop inflow of black money in automobile sector)

b) In case a startup decide to opt for lower tax rate of 25% in exchange to forego all exemptions, it cannot go back to higher tax bracket with exemptions.

One of the major decisions pertaining to Jewellery sellers regarding rollback of 1% excise duty was not taken, as more discussions are required. Due to the ongoing

Some of the other startup related reforms introduced by Govt.