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Budget 2020 proposes to defer ESOP Tax Payment for Start-Up Employees for 5 years

ESOP Tax - Startup - National - Advisory - Council - Central Government - Taxscan

In a Union Budget 2020 presented today, the Union Finance Minister Nirmala Sitharaman has proposed to defer Employee Stock Option Plan Tax ( ESOP ) Tax Payment for start-ups employees for five years.

The Finance Minister noted that during their formative years, Start-ups generally use ESOP Tax to attract and retain highly talented employees. Currently, ESOPs are taxable as perquisites at the time of exercise.

In order to give a boost to the start-up ecosystem, the Finance Minister has proposed to ease the burden of taxation on the employees by deferring the tax payment for five years or till they leave the company or when they sell their shares, whichever is earliest.

An eligible Start-up having turnover up to 25 crores is allowed the deduction of 100% on its profits for three consecutive assessment years out of seven years if the total turnover does not exceed 25 crore rupees.

The Finance Minister has proposed to increase this limit to Rs. 100 crore. She has also proposed to extend the period of eligibility for the claim of deduction from the existing 7 years to 10 years.

Other Proposals to boost Start-ups

With a view to expanding the base for knowledge-driven enterprises, the Finance Minister underscored the importance of intellectual property creation and protection. In this regard, she proposed several measures to benefit Start-ups:

  • To promote a digital platform that would facilitate seamless application and capture of IPRs. A Centre is also proposed to be established in an Institute of Eminence for working on innovation in the field of Intellectual Property.
  • Knowledge Translation Clusters to be set up across different technology sectors including new and emerging areas.
  • Technology Clusters, with test beds and small scale manufacturing facilities for designing, fabrication and validation of proof of concept to be established.
  • Two National-level Science Schemes are to be initiated to create a comprehensive database of mapping India‟s genetic landscape, given its criticality for next-generation medicine, agriculture and biodiversity management.
  • It is also proposed to provide early life funding, including a seed fund, to support ideation and development of early-stage Start-ups.
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