India defining startup and initial year of assessment | KPMG | GLOBAL

India: Defining “startup” and clarifying “initial year of assessment”

Tax terms defined for India's tax laws

The KPMG member firm in India has prepared reports describing the following tax developments (read more at the hyperlinks provided below).


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  • No tax withheld when interest not paid; no income accrued to the payee: The Karnataka High Court held that when interest has not been paid to the payee, there is no liability to withhold (deduct) tax because no income accrued in the hands of the payee. The case is: Karnataka Power Transmission Corporation Ltd.
  • Six months for rectification order: The Central Board of Direct Taxes (CBDT) issued an instruction to Assessing Officers to follow strictly the prescribed time limit of six months for an order under section 154(8) of the Income-tax Act, 1961. All rectification applications must be disposed of after passing an order in writing. 
  • AAR applications in different situations: The Delhi High Court held that the mere filing of a return by the taxpayer will not be treated as the question raised in an application for an Authority for Advance Ruling (AAR). The case is: Hyosung Corporation.
  • Defining “startup” and tax benefits: India’s government launched an initiative—“Startup India”—that is intended to empower startups to grow through innovation and design. A notification defines the term “startup” and prescribing the procedure for its recognition and tax benefits.
  • Clarifying “initial assessment year”: The CBDT issued guidance clarifying the term “initial assessment year” for purposes of claiming a deduction for 10 consecutive years, out of 15 or 20 years. Once the initial assessment year has been identified by the taxpayer, there is an entitlement to claim certain deductions for 10 consecutive years beginning from the year identified.
  • Buyback of shares not a colourable device and not treated as deemed dividend for tax purposes: The Mumbai Bench of the Income-tax Appellate Tribunal held that the buyback of shares under provisions of the Companies Act, 1956 is not a colourable device. The amount received under the buyback scheme is treated as capital gain (and not a deemed dividend). In this case, the capital gain was not taxable under the India-Mauritius tax treaty.

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