India budget expectations: Reform in ESOP taxes, allocations needed to address skill gaps

• The government has had initiatives like Skill India Mission, Digital University, and it would be interesting to see what kind of investments continue from a budget standpoint.
  
  
• On the tax front, reform of ESOP taxation, there should be only Capital Gains tax on the difference between the grant price and sale price of shares.
  
  
• Health insurance is predominantly focussed on inpatient benefits, and we need to do more on in-person outpatient access.
  

The next few years are going to be turbulent for the global economy. Still working through post-Covid recovery, we are already confronted with new challenges of looming recession, high inflationary pressure, dealing with new models of the future of work and significant talent crunch. Next 12 months will need leaders and businesses to navigate complexities not seen before. India will hopefully continue to remain a bright spark.

Over the next few years, the biggest challenge for companies in India will be not lack of capital, but talent availability in quality and quantity to fuel and drive growth. India needs to bring new talent to work, develop new talent hubs and build skills and capabilities rapidly to realize its full potential.

Here are a few things that can help India Inc become more competitive; skills easier to develop and build; workplaces more exciting and life of employees easier.

• Skill Gap Challenge has been a big area of focus for the government. Its relevance for organizations as they evolve their businesses into becoming more digital focused cannot be emphasized enough. The government has been focusing in this area with initiatives like Skill India Mission, Digital University, etc. and it would be interesting to see what kind of investments continue from a budget standpoint for skilling in India. The Union Education Minister made a statement recently highlighting government focus and more funds to be allocated for the implementation of the NEP (National Education Policy) in the new budget. Employees will prefer an exemption on the money spent for reskilling spent on themselves and families (currently this is applicable for fees paid for children). This could provide a financial motive for individuals to invest in themselves. Given the fast-changing technology, reskilling will become more like a norm rather than a necessity especially as the government pushes India as a manufacturing hub and help India accelerate its journey towards digital readiness. Skill development and continuous supply of skills will be one of the most important aspects that will drive business performance and growth in years to come.
  

• On the tax front, reform of ESOP taxation, there should be only Capital Gains tax on the difference between the grant price and sale price of shares. No perquisite tax on exercise as the shares are not freely tradable (or say ready market isn’t available). This provision is at present available to only recognised startups in India. This should be extended to all private companies in India. In addition, many business leaders in India have asked for a greater push for ESPS (Employee Share Purchase Programs). In this, employee shells out a part of their monthly salaries towards contribution to a fund (and equally matched by the employer) for purchasing the shares of the company on a later date. This can also be made part of Employee Provident Fund regulations. This will ensure ownership/ skin-in-the-game.
  
• Tax and incentives on aspects like the gig workforce and employing greater women in the workforce will significantly increase talent supply and provide much needed fuel to businesses. Higher talent supply will also help control double digit salary increases that India Inc cannot afford on a continuous basis.
  
• Some of the other areas where clarity and policy would help include, clearer roadmap and faster adoption of labour codes and clarity around wage definitions, relaxation of rules around retrenchment/layoffs, clarity on moonlighting and long-term policy on remote work in the context of SEZ.
  
• On the health and wellbeing front, increased focus on tax sops for preventive care and support for outpatient benefits via higher tax-free limits or encouraging investments in enabling infrastructure. In addition, health check-up tax benefits are limited to ₹5,000 today and this is inadequate for single income families (maybe get it to ₹10,000). Also, the health insurance market is predominantly focussed on inpatient (hospitalization) benefits, and we need to encourage early detection of illness hence encourage citizens to access primary care (telemedicine is being already enabled via National Health Mission initiatives but we need to do more on in-person outpatient access). Post-pandemic (which required outpatient benefit access) there is a heightened awareness of these limitations and hence the need to support this now given these are expensive.
  
• Some other areas of opportunity here include increases support on healthcare infrastructure private investments, review of 18% GST on insurance medical benefit plans which also do not get input tax credit today, need to regulate healthcare sector delivery (hospitals for example) and resultant cost increases (which are currently fully market dictated today). Also, there is a need to increase social security provisions for healthcare for employees particularly in the post retirement phase via new initiatives. This can be part-funded by willing employees themselves. Commercial insurance products for this segment are very expensive or non-existent at that age bracket.
  

(The author is CEO, Aon Consulting, India & South Asia)

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