Startup
StartupReuters file

The government is reportedly planning to make the recently-announced tax holiday for start-ups more business-friendly, as the proposal comes under fire from various quarters.

While announcing a slew of incentives on Jan. 16, the government had said that the start-ups can avail a tax holiday in the first three years of their operations.

However, as start-ups usually take three to five years to turn profitable, many argued over the expansion of scope of the tax holiday.

The government is likely to make changes to the proposal, allowing the start-ups to avail tax holiday from a block of 10 years instead of taking it in the first three years, sources told The Financial Express.

"The proposal is on the anvil. In the Budget, the government may allow start-ups to claim the three-year tax holiday from a block of years," said a source who is currently dealing with the matter.

Last month, Prime Minister Narendra Modi had announced several incentives to improve the start-up eco-system in the country. The action plan offered a tax holiday and inspector raj-free regime for three years, exemption from capital tax and Rs 10,000 crore fund to support them.

However, to avail the exemption, the start-ups are required to invest capital gains in the Fund of Funds recognised by the government. Experts said that the tax exemption measure is not flexible for start-ups.

"When we talk of start-up ecosystem, it is about large sums of money and we would like the government to make the ecosystem larger, more friendly. The rollover benefit should not only be limited to the fund of funds set up by the government but they should also be allowed to put the money into other funds or alternative investment funds that are putting money in start-ups," Amarjeet Singh, Partner-Tax at KPMG, told the daily.

The government may announce more sops for start-ups in the upcoming Budget in a bid to create a business-friendly environment for them, similar to the current system in Singapore.