Finance Minister Nirmala Sitharaman has announced relief on the tax burden on startup employees on ESOP tax payments.
FM presented the union budget for the financial year 2020-2021, which brought in a bundle of new announcements for the Indian startup ecosystem. With the biggest one being the proposed ease on tax burden for employee stock ownership plan (ESOPs).
“Referring to startups in her Budget speech, Finance Minister said that as part of efforts to boost startups, the tax burden on employees due to tax on employee stock options would be deferred by five years or till they leave the company or when they sell it, whichever is earliest. ”
Moreover, Sitharaman has also proposed 100% deduction of profits for 3 consecutive assessment years for a period of 7 years. Whereas big players in the startup ecosystem can avail such deduction within 10 years if they have a turnover of INR 100 Cr.
In her Budget speech, Finance Minister also said that startups with a turnover of up to Rs. 25 crores will be allowed the deduction of 100 percent of their profits for three consecutive assessment years out of seven if the total turnover does not exceed Rs. 25 crores.
The startup ecosystem has applauded the move.
Commenting on the announcement Darshan Upadhyay, Partner Economic Laws Practice, on the ESOPs deference said, “Tax on ESOPs deferred to earlier of period of 5 years or time of selling the shares at exit or leaving the job — this was one of the big hurdles on funding the tax at the time of exercise and making them cumbersome on the ESOPholders. This is a very good initiative for startups.”
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