DPIIT to simplify ESOPs, may give tax benefits to startups in budget

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Government of India is planning to consider a series of benefits including a simplified Employee Stock Ownership Plan (ESOP) for startup employees and tax sops for startups in the upcoming budget to support the Startup India initiative. Department for Promotion of Industry and Internal Trade (DPIIT), the body responsible for policy on startups together with the Department of Revenue has discussed a set of packages.

Apart from the above-mentioned concern, DPIIT is also planning to provide angel tax benefits to Private Equity (PE) funds and debt funds. At present, PE funds and debt funds do not enjoy any concessions. Angel tax concessions are only available to Alternative Investment Funds (AIFs). The government body is also planning other benefits for AIFs including a GST exemption for fund managers based in India.

Several startups and small and medium enterprises (SMEs) has sought a mechanism in place to ensure business with the government. As per a new rule, 20 percent of all government procurements will be done through startups. However, the new rule is not being enforced on the grounds, the startups complained.

A few days ago, India’s most trusted platform for angel investing LetsVenture has suggested ESOPs and liquidity policies for startup employees by opening up a discussion for the required policy and sought a balanced framework in favor of the startup employees. Ganesh Nayak, Director of LetsVenture emphasized that there is a need for a proper policy that can help startup employees to get ESOPs in a transparent way.

As per the current scenario, the employees of any startup are taxed when they exercise their options and convert ESOPs to shares. Several startups had raised concerns on this policy and demanded that ESOPs should be taxed only when the actual transaction happens.

Earlier last week, LocalCircles, a community management platform, wrote a letter to Finance Minister Nirmala Sitharaman and urged improvements in series of issues related to startups including faster TDS refund, Angel Tax concessions, startup-friendly and simplified GST system, and ESOP taxation. The first union budget of the new government is due to be presented on the 5th of July in the Lower House.

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Uday Bhakta
Uday is the correspondent for our "Govt Policies" section. He writes about the changes in policies, tax reforms, union budget and every other legal aspect related to entrepreneurs and startups. He has been writing for more than 10 years.

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