Updated: February 2, 2020 10:51:21 am
From setting up of an investment clearance cell for startups and entrepreneurs to relaxing procedures to claim tax incentives, the Union Budget proposed a slew of measures to promote growth of startups and entrepreneurs. In addition to this, Minister of Finance Nirmala Sitharaman, in the Budget speech, proposed easing the burden of taxation on employees of startups by deferring the tax payment on ESOPs (employee stock option plans) by five years, or till they leave the company, or when they sell their shares, whichever is earliest.
ESOPs are significant component of compensation for employees of startups, and are currently taxable. “This leads to cash flow problem for the employees who do not sell their shares immediately and continue to hold the same for long term,” Sitharaman said.
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The minister also said that an eligible startup having a turnover of up to Rs 25 crore is allowed a deduction of 100 per cent of its profits for three consecutive assessment years out of seven years, if the total turnover does not exceed Rs 25 crore. “In order to extend this benefit to larger startups also, I propose to increase the turnover limit from existing Rs 25 crore to Rs 100 crore. Moreover, considering the fact that in the initial years, a startup may not have adequate profit to avail this deduction, I propose to extend the period of eligibility for claim of deduction from the existing 7 years to 10 years,” she added.
Through the investment clearance cell for entrepreneurs, the minister said the government will provide end-to-end facilitation and support including pre-investment advisory, information related to land banks and facilitate clearances at centre and also at the state level.
“The initiatives focused on start-ups such as deferring ESOP taxation for employees…will likely help attract and retain talent; and the tax deduction on profits for eligible start-ups having a turnover of up to Rs 25 crore for three consecutive assessment years out of seven years, will help start-ups meet their working capital requirements during their initial crucial years of operations,” said Ankur Pahwa, Partner and National Leader, e-commerce and consumer internet, EY India.
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