India is moving forward and so are its needs. The new and emerging industry today is that of the startup industry. It is growing to be lifeline of the country, with more ideas and dreams turning into reality. The need for different policies and rules governing it has already been recognised. This union budget was another step forward on the same path.

A major change for the startup industry included:

  • a) Extension of tax holidays for start ups
  • b) Tax benefits on ESOP

Extension of Tax holidays for startup

To boost the startup industry and encourage them in the future, the government had introduced the tax holiday scheme in the union budget 2016. As per the the scheme startups with turnover upto 25crs are allowed deduction of 100% profits for 3 consecutive assessment years out of 7 years if the total turnover does not exceed 25 crs.
Consecutively, in the present Budget 2020, the existing turnover limit of 25 crs has been increased to 100 crs for the benefit of the larger startups. Further the period of eligibility has been extended to 10 years.

Tax Benefits on Employee Stock Option Plan (ESOP)

As per the present situation ESOPs are taxable as perquisites at the time of exercise. With the introduction of new policy, the tax burden on employees is being made easy by deferring the tax payment on the ESOP.

Accordingly, the proposed taxation policy for startups issuing ESOPs is that the ESOPs be taxed at the earliest of the following:

5 years
Till the employees leave the company
When the employees sell the shares

This taxation policy aims at reducing the tax compliances on the startups, reduce the rigidity prevailing and ease the policy to encourage and boost the industry.

The new policy to be implemented paves the way for flexibility in norms and regulations. This eases the compliances on the companies, and makes it an attractive industry to enter. Encouraging new ideas and innovations creates a space for the indigenous companies to remain in the country.

Disclaimer:“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation.”

Prepared By

Deepthi G

Date: 19/03/2020