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Nirmala Sitharaman relaxes ESOP tax, announces early-stage funding for start-ups

BusinessToday.In     February 1, 2020

Budget 2020: Finance Minister Nirmala Sitharaman announced a host of measures to give a boost start-ups. The minister announced a relaxation of taxes on employee stock ownership plans (ESOPs), fresh tax rebates as well as a dedicated early-stage fund.

Finance Minister Sitharaman said that a startup with an annual turnover of up to Rs 25 crore will be allowed a 100 per cent deduction of its profits for three consecutive assessment years out of the first seven years. "Moreover, considering that during the initial years a startup may not have adequate profits to avail this deduction, I propose to extent the period of claim of deduction from the existing 7 years to 10 years," said the minister.

FULL COVERAGE: Union Budget 2020

The minister also proposed deferring of tax payment by five years or until employees leave the company or when they sell their shares - whichever is earlier - to avoid dual taxation on ESOP shares. Currently start-up employees are required to pay tax whenever they sign up for ESOPs as well as pay capital gains tax on whenever they redeem their ESOPs.

FM Sitharaman also said that the government will directly provide seed funding to support the start-ups in their early days. A centralised investment clearance cell for end-to-end facilitation, support and pre-investment advisory was also proposed by the minister.

The minister also announced the creation of data centre parks for private and public sectors that will boost start-up activity in the country. "The government will setup a policy to enable setting up of data centre parks throughout the country... It will enable our private and public sector firms to incorporate data into their business, and even in anganwadis, government schools, police stations, and panchayats," said the minister.

Also read: Budget 2020 Speech: Successful disinvestments to happen in next few months, says FM Sitharaman

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