Taxation Times

March 2025

Introduction

by Anjali Darak

Manager - Direct Tax

India’s startup ecosystem has been thriving, fueled by innovation, entrepreneurship, and government initiatives. With the 2025 Union Budget, Finance Minister Nirmala Sitharaman has introduced a series of tax reforms aimed at further nurturing this growing sector. The new tax regime for startups offers several incentives designed to support young enterprises, reduce their tax burden, and promote long-term sustainability. However, as with any reform, there are both opportunities and challenges that startups must understand to fully capitalize on these provisions.

Coming to this month’s, Taxation Times, here’s what we have:

An article on Understanding the New Tax Regime for Startups: Opportunities and Challenges.
Case Laws from various courts & jurisdictions.
Tax Compliance Calendar – March 2025;
Circulars & Notifications – February 2025;
Tax News from around the world

We hope that you find this month’s edition of the Taxation Times useful. In case you have any feedback or need us to include any information to make this issue more informative, please feel free to write to us at info@uja.in

Happy New Year!
Happy Reading!

Best Regards,
UJA Tax Team

Understanding the New Tax Regime for Startups: Opportunities and Challenge

Exploring the new tax incentives for startups introduced in the 2025 Budget. This would include an analysis of the reduced tax rates, tax holidays, and the government’s efforts to foster entrepreneurship and innovation.

In this article, we will explore the key features of the 2025 tax reforms, the opportunities they present for startups, and the challenges that come with implementing these changes. By gaining a clearer understanding of the new tax landscape, startups can make informed decisions that will help them scale and succeed in a competitive market.

Key Features of the New Tax Regime for Startups

The new tax measures introduced in the 2025 Budget focus on making the startup ecosystem more competitive globally. Here are the main highlights:

Lower Corporate Tax Rate

15% Tax Rate for New Startups
A major component of the 2025 tax regime is the introduction of a reduced 15% corporate tax rate for new startups in the first 5 years of operation. Previously, this rate was available only for specific sectors or businesses fulfilling certain conditions. The 2025 change broadens this to include more startups, helping them retain more earnings to reinvest in growth.
Eligibility Criteria
To qualify, startups must have been incorporated after a certain date (specified by the government). This offers substantial savings for those who are in the early stages of their journey.

Tax Holidays and Exemptions

Tax Holiday for the First 5 Years:
Startups incorporated after the 2025 Budget will be eligible for a tax holiday for the first 5 years of their operations, with no minimum tax liability. This is an extension of previous measures that allowed startups to focus on growth and innovation without the immediate pressure of corporate tax.
Carry Forward of Losses:
In a bid to help startups focus on growth, the government has extended the ability for startups to carry forward losses even if they haven’t made a profit in the first 10 years of operation. This enables them to offset losses against future profits, reducing tax liabilities in subsequent years.

Easier Compliance and Filing Process

Simplified Compliance:
The government has made provisions for simplified tax filings, reducing the compliance burden on new entrepreneurs. With a focus on digital platforms and AI-based systems, the process of submitting returns and managing records will be streamlined.
Reduction in Tax Audits:
For qualifying startups, the threshold for mandatory tax audits has been raised, reducing the burden of audits in the initial years of business. This will allow young businesses to focus on their core operations without the distraction of frequent audits.

Enhanced Depreciation on Equipment and Infrastructure

Startups investing in equipment, infrastructure, and technology will be able to claim higher depreciation rates, leading to reduced taxable income. This provision is particularly helpful for technology-driven startups and those in sectors that require significant capital expenditure, such as manufacturing or renewable energy.

Opportunities for Startups

The new tax regime brings several opportunities that can help startups scale faster and improve their financial positioning:

Enhanced Cash Flow for Reinvestment
The reduced corporate tax rate and the availability of tax holidays mean startups can retain a significant portion of their profits in the early years. This boosts cash flow, which can be reinvested into R&D, marketing, talent acquisition, and scaling operations, allowing startups to compete with established businesses.
Increased Investor Confidence
The tax benefits make the Indian startup ecosystem more attractive to both domestic and international investors. A tax-friendly environment enhances investor confidence as they know their investments will be more protected and offer higher returns.
Focus on Long-Term Growth
By reducing the tax burden and offering exemptions, startups can prioritize long-term growth strategies over short-term financial pressure. This encourages investment in innovation, infrastructure, and market expansion.
Boost to Sector-Specific Innovations
The government’s encouragement for startups to focus on clean energy, technology, and other growth-oriented sectors means that startups in these industries will have access to additional benefits like faster depreciation and investment-linked incentives. This aligns with India’s broader goals of digital and green growth.

Challenges to Consider

While the new tax regime provides numerous advantages, startups should also be aware of the potential challenges that come with these reforms:

Navigating the Complex Eligibility Criteria
The eligibility criteria for tax reliefs and incentives can be complex. Startups must ensure they meet all conditions, such as incorporation date, industry classification, and minimum turnover. Failure to meet these criteria could result in the loss of potential benefits.
Maintaining Compliance Amid Simplified Processes
While tax filing has been simplified, ensuring full compliance with the regulations will still require careful attention. Startups will need to stay updated on new guidelines, changes in tax rules, and documentation requirements to avoid penalties or losing tax benefits.
Investment in Technology and Infrastructure
To qualify for enhanced depreciation, startups must make significant capital investments in infrastructure or technology. For some, this may represent a financial burden or require external financing, which could be a challenge for startups in the very early stages of their lifecycle.
Dependency on Government Policies
While the government’s support is crucial, startups must remain mindful of any future policy shifts. Tax benefits tied to specific government initiatives or objectives could change with future budgets, making long-term planning a challenge.

Lack of Awareness and Guidance
Many startups may not be fully aware of the tax incentives available to them or how to effectively navigate the new tax regime. This lack of knowledge could prevent them from taking full advantage of the reforms. Startups will need expert guidance from tax professionals to fully benefit from these provisions.

Conclusion

The new tax regime introduced in the 2025 Union Budget presents significant opportunities for startups in India, especially in terms of tax reductions, simplified compliance, and long-term growth. While the provisions are designed to foster innovation and entrepreneurship, startups must also remain vigilant about compliance and eligibility to fully benefit from the changes. As the startup ecosystem continues to evolve, these tax incentives are poised to play a critical role in shaping the next generation of successful businesses in India.

Startups should take the time to understand the tax rules in depth and seek expert advice to ensure they are optimizing the opportunities available. By doing so, they can position themselves for success in an increasingly competitive and dynamic business environment.

Case Laws

DATE: JANUARY 24, 2025

[2025] 170 taxmann.com 707 (Bombay) HIGH COURT OF BOMBAY Chamber of Tax Consultants v. Director General of Income Tax (systems)

Section 87A, read with sections 115BAC and 139D, of the Income-tax Act, 1961

Rebate (Denial)- Assessment year 2024-25 – Revenue published a change in utility for filing income tax returns online with effect from 5-7-202 which unilaterally disabled assessees from claiming rebate under section 87A – In instant writ, petitioner challenged said modification claiming that rebate under section 87A was to be allowed not only from tax computed under section 115BAC but also from tax computed following other provisions of Chapter XII of the Act unless such other provisions expressly debar them from making claim – Revenue contended that rebate under section 87A couldn’t be granted from tax specified in other sections of Chapter XII other than section 115BAC and form prescribed was in accordance with provisions of Act and there was no need to seek prayer for modification of the utility – Whether section 139D, read with rule 12, provides for filing of return in electronic form and authorises Board to make rules for class of persons who are required to file return in electronic form, however, section 139D, read with rule 12, does not empower authorities to design form on basis of their reading of law or provisions which debar an assessee from making a claim at threshold itself – Held, yes – Whether since issue raised for consideration on claim under section 87A was highly debatable and contentious, revenue would not be justified in assuming that its interpretation was open and shut, and based upon such a conclusion, shut out bona fide claims for rebate under section 87A – Held, yes – Whether, thus, assessee could not be restrained from claiming rebate under section 87A by modifying utility by which assessee was forbidden at threshold itself from making such a claim – Held, yes [Paras 44, 55 and 64]

Facts:

The revenue published a change in utility with effect from 5-7-2024, said modification unilaterally disabled assessees from claiming rebate under section 87A. As a result, taxpayers, despite being statutorily eligible, were effectively deprived of their entitlements solely due to technical modifications introduced by the revenue.
Pursuant to said modification, petition was filed by Chamber of Tax Consultants(petitioner) and High Court granted interim relief by directing the CBDT to issue notification for extending the due date for e-filing of the income-tax return to ensure that taxpayers eligible for the rebate under section 87A were allowed to exercise their statutory rights without facing procedural impediments.
Pursuant to said direction, the Board issued a notification on 31-12-2024, extending the last date for furnishing returns under section 139(4)/139(5) for the relevant assessment year in the case of a resident individual from 31-12- 2024 to 15-1-2025.
The petitioners made various representations to revenues on the issue of utility not providing for making a claim under section 87A but, having failed to get justice, approached the High Court for redressal of their grievances. It was this denial on account of the modification of the utility on and from 5-7-2024, which was challenged in the present petition. The petitioners contended that rebate under section 87A was to be allowed not only from the tax computed under section 115BAC but also from the tax computed following other provisions of Chapter XII of the Act unless such other provisions expressly debar them from making the claim.

Held:

The issue raised for consideration on the claim under section 87A is, at best, highly debatable and contentious. Therefore, the revenue would not be justified in assuming that its interpretation is open and shut, and based upon such a conclusion, shut out bona fide claims for rebate under section 87A. At least, all this cannot be done by exercising administrative powers instead of quasi-judicial powers. Disputed claims, except to the limited extent explicitly permitted by the law, cannot ordinarily be disposed of by the executive acting in its executive capacity. This is more so when the executive is itself a party to the Lis. One of the foundations of our Constitution is the Rule of Law. This posits that all three organs of governance, the Legislature, the Executive, and the Judiciary function under and in accordance with the law as enshrined in our Constitution. [Para 44]
Section 139D provides for filing of return in electronic form and authorises the Board to make rules for class of persons who are required to file return in electronic form, the form and manner in which such returns are to be furnished, documents which are not required to be furnished along with return and computer resource to which such return may be transmitted. Pursuant to this, under rule 12 of the Income-tax Rules various forms are prescribed. Section 139D, read with rule 12, does not empower the authorities to design the form on the basis of their reading of law or provisions which debar an assessee from making a claim at the threshold itself. [Para 55]

Because of the above, the following order is passed: – (i) Rule is made absolute in terms of prayer clause (a) which reads as under: – (a) that this Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or any other appropriate writ, direction or order directing the revenues to modify the utilities for filing of the return of income under section 139 immediately, thereby allowing assessees to make a claim of rebate under section 87A read with the proviso to section 87A, in their return of income for the assessment year 2024-25 and subsequent years including revised returns to be filed under section 139(5). (ii) Since prayer clause (a) is allowed, prayer clause (b) does not survive, which deals with filing a manual return of income for claiming a rebate under section 87A. (iii) The issue of adjudication of eligibility of a claim under section 87A is left to the authorities under the Act while processing the returns filed by the assessees.[Para 64]

In Favour of: The Assessee

[2025] 170 taxmann.com 673 (Karnataka) HIGH COURT OF KARNATAKA Income-tax Officer v. Smt. Preethi V

Reference: Section 148, read with section 159, of the Income-tax Act, 1961

Income escaping assessment – Issue of notice for (Deceased assessee) – Assessment year 2016-17 – Assessee had passed away on 14-10-2022 – Notice under section 148 was issued on 13-3-2023 – Assessee filed a petition contending that while notice was issued under section 148 against a dead person, such notice being invalid, all consequential proceedings including assessment order and penalty notices were required to be set aside – Whether notice under section 148 issued against a deceased person is invalid in law – Held, yes – Whether proceedings against deceased’s legal representatives are permissible only if initiated in compliance with section 159(2)(b) – Held, yes – Whether since time limit under section 149(1)(b) for initiating proceedings for assessment year 2016-17 had expired, proceedings under section 148 could not have been initiated against legal representative of deceased assessee – Held, yes – Whether therefore, notice under section 148 and all consequential orders, including demand and penalty notices, were to be quashed and set aside – Held, yes [Paras 3, 8, 11 and 13].

Facts:

The assessee had passed away on 14-10-2022.
As regards the assessment year 2016-17, notice under section 148 was issued on 13-3-2023.
The assessee filed a petition contending that while notice was issued under section 148 against a dead person, such notice being invalid, all consequential proceedings including the assessment order under section 147 read with section 144 and proceedings for penalty were required to be set aside.

Held:

The admitted fact being that the notice is issued against a dead person and the assessee has died on 14-10-2022, the notice is invalid in law. In the event the assessee had died even before the issuance of notice under section 148, only procedure making it permissible to initiate proceedings is the satisfaction of the test under section 159(2)(b).[Para 8]
In light of the above, question of continuing with fresh proceedings against the deceased which liberty is sought for by the revenue would be permissible only if proceedings could have been taken against the deceased if he had survived. [Para 9]
The present proceedings under section 148 are as regards the assessment year 2016-17, the time limit for the proceedings under section 148 would be in terms of section 149(1)(b) proviso. In terms of the proviso there is a bar for issuance of notice under section 148 in a case for a relevant assessment year before 1-4-2021 and in the present case as the assessment year 2016-17 falls within the applicability of the proviso, and proceedings would have been initiated within 31-3-2023 within the outer limit of 6 years from the end of assessment year 2016-17 as against the legal representative. [Para 10]
Accordingly, at this stage while setting aside the notice under section 148, question of granting liberty would be contrary to the mandate of time prescribed under section 149(1)(b) proviso. [Para 11]
No doubt it is the contention of the revenue that intimation if given within time, the revenue would have initiated fresh proceedings against the legal representatives. However, there is no support for the contention that there is a statutory obligation on the deceased assessee to intimate the department. [Para 12]
Accordingly, by setting aside the notice issued under section 148 and the orders pursuant thereto including demand notice and penalty notices are set aside. The consequential proceedings if any, raising demand are also set aside. Accordingly, petition is disposed off. [Para 13]

In Favour of: The Assessee

Circulars and Notifications February 2025

Circulars / Orders

SECTION 138 OF THE INCOME-TAX ACT, 1961 - DISCLOSURE OF INFORMATION RESPECTING ASSESSEES TO SPECIFIED OFFICER, AUTHORITY OR BODY PERFORMING FUNCTIONS UNDER ANY OTHER LAW - NOTIFIED AUTHORITY UNDER SECTION 138(1)(a)

Central Board of Direct Taxes, in exercise of powers conferred under clause (a) of sub-section (1) of section 138 of Income-tax Act, 1961 (‘the Act’), hereby directs that Director General of Income-tax (Systems), New Delhi shall be the specified authority for furnishing information to Joint Secretary to Government of India, Department of Food and Public Distribution (DFPD), Ministry of Consumer Affairs, Food & Public Distribution as notified by Notification No. 12/2025 (S.O.: 524(E)), dated 30-1-2025 for the purposes of the said clause in connection with sharing of information regarding Income-tax payers’ for identifying eligible beneficiaries under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY).

The mechanism of sharing of information shall be as under:—

(i) Department of Food and Public Distribution (DFPD) shall furnish the Aadhaar Number(s) or PAN(s) along with the Assessment Year(s) to DGIT (Systems), New Delhi.

(ii) If the PAN is provided or the provided Aadhaar is linked with PAN, DGIT (Systems), New Delhi shall furnish the response to Department of Food and Public distribution (DFPD) in the form of flag “Yes/No/Not Available” in respect of the threshold income level of the shared Aadhaar Number(s)/ PAN(s) and Assessment Year(s) as per the ITD database.

(iii) If the provided Aadhaar Number is not linked with any PAN in the ITD database, DGIT(Systems), New Delhi shall furnish the response to Department of Food and Public Distribution (DFPD) in the form of flag ‘Information cannot be made available due to absence of PAN-Aadhaar linkage’.

(iv) The frequency of furnishing such response and Mode of exchange of information shall be decided by the DGIT (Systems), New Delhi in consultation with (he requesting Department.

To facilitate the process of furnishing information, Director General of Income-tax (Systems), New Delhi shall enter into a Memorandum of Understanding (‘MoU’) with notified authority of Department of Food and Public Distribution, which interalia shall include the mode of transfer of data, maintenance of confidentiality, mechanism for safe preservation of data, weeding out after usage, etc. The timeline for furnishing information shall also be decided by Director General of Income-tax (Systems), New Delhi in consultation with the notified authority and included in the said MoU.
A copy of MoU shall be forwarded to this Division for record purposes.

ORDER F. NO. 225/235/2024/ITA-II, DATED 31-1-2025

Press Release

EXECUTIVE SUMMARY ON THE COMPREHENSIVE SIMPLIFICATION OF THE INCOME-TAX ACT, 1961

The Income-tax Bill, 2025 has been tabled in Parliament on 13th February 2025, marking a significant step toward simplifying the language and structure of the Income-tax Act, 1961.

The simplification exercise was guided by three core principles:

Textual and structural simplification for improved clarity and coherence.
No major tax policy changes to ensure continuity and certainty.
No modifications of tax rates, preserving predictability for taxpayers.

A three-pronged approach was adopted:

♦ Eliminating intricate language to enhance readability.

♦ Removing redundant and repetitive provisions for better navigation.

♦ Reorganizing sections logically to facilitate ease of reference.

PRESS RELEASE, DATED 13-2-2025

Notifications

G.S.R.121(E).—In exercise of the powers conferred by section 295 read with clause (47) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:___

1.(1) These rules may be called the Income-tax (Third Amendment) Rules, 2025.

(2) They shall come into force on the date of their publication in the Official Gazette.

2.In the Income-tax Rules, 1962, in rule 2F,–(a)for sub-rules (1), (2), (3) and (4), the following sub-rules shall be substituted, namely:–“

(1) The Infrastructure Debt Fund shall be set up as a Non-Banking Financial Company conforming to and satisfying the conditions laid down in the regulatory framework provided by the Reserve Bank of India.

(2) The funds of the Infrastructure Debt Fund shall be invested only in,–(a)post commencement operation date infrastructure projects which have completed at least one year of satisfactory commercial operations; or(b)toll-operate-transfer projects as the direct lender.

(3) The Infrastructure Debt Fund shall,—(i)issue rupee denominated bonds or foreign currency bonds in accordance with the directions of Reserve Bank of India and the relevant regulations under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, as amended from time to time; (ii)issue zero coupon bonds in accordance with rule 8B; or(iii)raise funds through loan route under external commercial borrowings.

(4) The terms and conditions of, ─ (a)a bond issued by the Infrastructure Debt Fund,–(i)under clause (i) of sub-rule (3) shall be in accordance with the directions of the Reserve Bank of India and the regulations referred to in the said clause; (ii)under clause (ii) of sub-rule (3) shall be in accordance with rule 8B; or(b)external commercial borrowings by the Infrastructure Debt Fund, under clause (iii) of sub-rule (3) shall be in accordance with the directions of the Foreign Exchange Department of the Reserve Bank of India.”;

(b)after sub-rule (5), the following sub-rule shall be inserted, namely:–“(5A) In case of external commercial borrowings by the Infrastructure Debt Fund, the tenor shall not be less than a period of five years and such borrowings shall not be sourced from foreign branches of Indian banks.”;

(c)for sub-rule (7), the following shall be substituted, namely:–“(7) No investment shall be made by the Infrastructure Debt Fund in any project where its specified shareholder or the associated enterprise or the group of such specified shareholder has a substantial interest.”;

(d)in the Explanation, –

(I) in the clause (i), for the word “associate”, the word “associated” shall be substituted;

(II) for clause (viii), the following shall be substituted, namely: –“(viii) “specified shareholder” means a non-banking financial company, or a bank, or any other person holding, directly or indirectly, shares carrying not less than thirty per cent of the voting power in Infrastructure Debt Fund.”

Notification No. F.No.370142/9/2024-TP, DATED 07-02-2025

Tax Calender: February 2025

02nd March 2025

Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IA/ 194-IB/ 194M/ 194S in the month of January 2025

07th March 2025

Due date for deposit of Tax deducted/collected for the month of February 2025. However, all sum deducted/collected by an office of the government shall be paid to the credit of the Central Government on the same day where tax is paid without production of an Income-tax Challan

15th March 2025

Due date for Fourth installment of advance tax for the assessment year 2025-26.
Due date for Instalment of Advance Tax for assessee covered under presumptive income scheme of Section 44AD/44ADA

17th March 2025

Due date for issue of TDS Certificate for tax deducted under section 194-IA/194-IB/194M/194S in the month of January 2024

30th March 2025

Due date for furnishing of challan-cum-statement in respect of tax deducted under section 194-IA/ 194-IB/ 194M/ 194S in the month of February, 2025

31st March 2025

Form 3CEAD: Report by a parent entity or an alternate reporting entity or any other constituent entity, resident in India, for the purposes of sub-section (2) or sub-section (4) of section 286 of the Income-tax Act, 1961 (assuming reporting accounting year is April 1, 2023 to March 31, 2024).
Form 67: Due date for claiming foreign tax credit, upload statement of foreign income offered for tax for the Previous Year 2023-24 and of foreign tax deducted or paid on such income in Form No. 67.
Equalisation Levy Deposit Due Dates: Collection and recovery of equalisation levy on e-commerce supply or services for the quarter ending March 31, 2025

Tax News from Around the World

Potential Council Tax Increases:
One in five homeowners in Scotland could face a council tax increase of up to £500 if property valuations were updated to reflect current prices. The Scottish Government has initiated a consultation to reform the council tax system, despite criticism from political opponents about the lack of a concrete plan.

IRS Refund Delays:
The IRS has warned American taxpayers of potential delays in processing returns, especially for those claiming Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC). Refunds for these credits will not be issued before mid-February due to additional identity checks. Taxpayers are advised to file electronically and select direct deposit for quicker processing.

European Union’s (EUs) Global Corporate Tax Plans: The EUs top tax official indicated that the EU could independently implement a new global corporate tax despite the US withdrawing from an international coalition. This tax aims to levy some of the world’s most profitable companies, particularly US tech giants, based on their revenue instead of their headquarters.