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Budget 2017 may spring sweet surprises for startups

The Department of Industrial Policy and Promotion is designing a new set of tax concessions on employee stock options, unlisted securities and convertible instruments.

BT Online   New Delhi     Last Updated: January 20, 2017  | 19:53 IST
Budget 2017 may spring sweet surprises for startups
File photo of Union Finance Minister Arun Jaitley (Reuters)

Prime Minister Narendra Modi's flagship project, Startup India, might get a push in upcoming Union Budget. According to some media reports,  to guarantee the success of the key program, the Department of Industrial Policy and Promotion (DIPP) is designing a new set of tax concessions on employee stock options, unlisted securities and convertible instruments.

Confirming the same, in a conversation with Economic Times, a senior government official said," "We are trying to address various tax and regulatory issues which the startups are facing currently, hoping that the budget will address some of these issues".

Last year was tough for startups in India. Many of them tanked before even taking off. To make the situation better, DIPP proposed that the employee stock ownership plans (ESOPs) for the startups should be taxed at the time of sale, which would help in paying their taxes as they would have greater liquidity and the instruments could also get a fair valuation.

To further support the initiative, the regulatory body also suggested that the period of long-term capital gains for unlisted securities should lower down from the current limit of two years as investing in startups involved risks.

DIPP is also in the process of finalising guidelines for a credit guarantee fund scheme to increase the availability of finance.

According to the Economic Times report, the demand for increasing the span of tax holiday period to seven years from the current three years could also be taken into consideration. 

ALSO READ: Six things taxpayers expect from Budget 2017

Prime Minister Modi announced the startup plan in January, last year. Under which the credit guarantee mechanism through the National Credit Guarantee Trust Company or the Small Industries Development Bank of India (Sidbi), had been made a compulsion.

The plan also proposed a funding of Rs 500 crore for the next four years to all the new businesses under the program.

Since the launch of the Startup India Action Plan, many incentives have been announced in order to facilitate smooth working conditions such as tatkal service for startups for filing patents and faster clearance route to save them from the tedious procedures.

DIPP also proposed to set up a credit guarantee fund with a budget of Rs 2,000 crore.

 

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