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<ul><li>The Department for Promotion of Industry and Internal Trade is looking to offer tax sops to startups, according to reports.</li><li>This would include the tax levied on Employee Stock Options.</li></ul>As the date for the Union Budget inches closer, the Department for Promotion of Industry and Internal Trade has held discussions to offer tax sops to startups, according to <a href="https://timesofindia.indiatimes.com/business/india-business/government-plans-fresh-set-of-tax-sops-for-startups-in-budget/articleshow/69818112.cms">reports</a> The government is looking to have simpler regulations for tax levied upon Employee Stock Options (<keyword id="173739" type="PERSON" weightage="20" keywordseo="Esops">ESOPs</keyword>). In the interim budget announced in February, startups had got barely any mention by then acting Finance Minister Piyush Goyal. Entrepreneurs in the country were disappointed with the complete miss on startups by the otherwise startup-pro Modi government. One of the pressing worries of the startup ecosystem in India is the angel tax which the government has looked into. In May, DPIIT secretary Ramesh Abhishek had said that 541 startups had been given exemption from angel tax. In February, the DPIIT had announced that an entity will be considered a startup for a period of 10 years from the date of its incorporation as opposed to the earlier norm of seven years. Similarly, an entity will continue to be recognised as a start-up if its turnover for any of the financial years since incorporation and registration has not exceeded ₹100 crore in place of ₹25 crore earlier. The DPIIT is also looking at getting a definition for “accredited investors” for angel investments. To avail exemption from angel tax, a startup has to be recognised by DPIIT and the numbers there too have shot up. From 16,171 recognised startups in February, today there are 19,167 recognised startups, according to the official data on the Startup India website. See Also: <a href="https://www.businessinsider.in/budget-2019-expectations-tax-rebates-and-incentives-for-angel-investments-in-startups/articleshow/69627899.cms">The government can be an 'angel' if it replaces tax with incentives, explains a startup groomer</a> <a href="https://www.businessinsider.in/angel-tax-startup-definition-changed-exemption-up-to-25-crore/articleshow/68063050.cms">Indian government finally comes to a decision on Angel Tax, changes definition of startups</a>

Budget 2019 may offer tax benefits for startups and simpler norms for ESOPs

New Delhi, Dec 30 () The government is expected to provide tax incentives to start-ups in the forthcoming budget to support the growth of budding entrepreneurs, sources said.
The Department for Promotion of Industry and Internal Trade (DPIIT) has suggested several measures to the finance ministry for start-ups in the budget.
The recommendations include extension of tax incentives to incubators supported under Atal Innovation Mission; reduction in GST (Goods and Services Tax) rates on AIF (alternate investment fund) management fees; and tax benefits on ESOPs, they said.
Start-ups need talented workforce and ESOPs are one of the best options to attract skilled people as giving just high cash payout add to the burden on cash-starved enterprises, industry players said.
 Tiger Global-backed tea cafe chain Chaayos founder Nitin Saluja said that there should be less tax on ESOPs.
"It should attract as little tax as possible. ESOPs are one of the best options for startups at their early stages," Saluja said. 
 Further fees charged by fund manager of AIF domiciled in India is liable to 18 per cent GST as it qualifies as a taxable supply.
 Sources said that reduction in GST rates will help India to become an investment hub.
 Startup India initiative of the government aims at fostering entrepreneurship and promoting innovation by creating an ecosystem that is conducive to growth of budding entrepreneurs.
There are 19 components under the Startup India action plan spanning across areas such as simplification and hand holding, funding support and incentives, and industry-academia partnership and incubation.
So far the department has recognised 26,619 startups. Of these, maximum were in the IT services space which was followed by healthcare and lifesciences, and education. 
 Finance Minister Nirmala Sitharaman is likely to present the Budget for 2020-21 fiscal on February 1, 2020. RR CS RR MR
MR

Govt may provide tax incentives for startups in Budget

New Delhi, Feb 1 () Startups on Saturday welcomed the Budget proposal of relaxing ESOPs taxation, but said linking it to Section 80-IAC will limit its impact to a small section of startups.
"The relaxation for ESOP taxation was welcome but linking it to Sec 80-IAC makes it meaningless as it impacts only a 100 odd startups. We had requested for this to apply to all DPIIT (Department for Promotion of Industry and Internal Trade) registered startups. I do hope they correct that urgently," Indian Angel Network Chairman Saurabh Srivastava said in a statement.
During her Budget speech, Finance Minister Nirmala Sitharaman proposed easing of tax payments for startups - a decision which has been hailed by budding entrepreneurs.
"In order to give a boost to startup ecosystem, I propose to ease the burden of taxation on the employees by deferring the tax payment by five years or till they leave the company or when they sell, whichever is earliest," she said while presenting the Union Budget for 2020-21.
Employee stock option plan (ESOP) is a significant component of compensation for these employees, she said. Currently, it is taxable.
"This leads to cash flow problem for the employees who do not sell their shares immediately and continue to hold the same for long term," she said.
During their formative years, startups generally use ESOPs to attract and retain highly talented employees, she added.
Orios Venture Partners' Rehan Yar Khan said it is good that entry level capital gains had been differed to five year, exit or sale, whichever sooner. "Not Good: Yet need to pay entry level capital gains in 5 yrs if yet with company. The exemption only applies to Startups registered with IMB," he tweeted.
LocalCircles head Sachin Taparia tweeted: "This benefit seems to be extended to only startups incorporated after April 1, 2016. Needs to be extended to all startups that are eligible for #angeltax benefit. Also, need to make #esop taxable at sale without the 2 other conditions of 5 years or employee exit". SR BAL

Startups hail Budget for relaxing ESOPs norm

New Delhi, Feb 1 () Finance Minister Nirmala Sitharaman on Saturday announced a host of measures including relaxing tax incentives and setting up of investment clearance cell for startups and entrepreneurs with a view to promote their growth.
 The minister has also proposed to provide early life funding, including a seed fund to support ideation and development of early stage startups.
 She asked all the infrastructure agencies of the government to involve startups as they will help in rolling out value-added services in quality public infrastructure for citizens.
 Sitharaman has proposed easing of tax payments for startups - a decision which was hailed by budding entrepreneurs.
 "In order to give a boost to startup ecosystem, I propose to ease the burden of taxation on the employees by deferring the tax payment by five years or till they leave the company or when they sell, whichever is earliest," she said while presenting the Union Budget for 2020-21.
 Employee stock option plan (ESOP) is a significant component of compensation for these employees, she said. Currently, it is taxable.
 "This leads to cash flow problem for the employees who do not sell their shares immediately and continue to hold the same for long term," she said.
 During their formative years, startups generally use ESOPs to attract and retain highly talented employees, she added.
 Further, the minister said that an eligible startup having a turnover of up to Rs 25 crore is allowed a deduction of 100 per cent of its profits for three consecutive assessment years out of seven years, if the total turnover does not exceed Rs 25 crore.
 "In order to extend this benefit to larger startups also, I propose to increase the turnover limit from existing Rs 25 crore to Rs 100 crore.
 "Moreover, considering the fact that in the initial years, a startup may not have adequate profit to avail this deduction, I propose to extend the period of eligibility for claim of deduction from the existing 7 years to 10 years," Sitharaman said.
 About investment clearance cell for entrepreneurs, the minister said the government will provide end-to-end facilitation and support including pre-investment advisory, information related to land banks and facilitate clearances at centre and also at the state level.
 The cell will work through a portal.
 Commenting in the proposals, world trade information provider Connect2India founder and CEO Pawan Gupta said the proposed seed funding support for 'ideation and development' of early-stage startups would encourage more people to take the entrepreneurship plunge as well as support the existing players.
 "The ESOPs have always been a very strong mechanism for startups to incentivise, attract and retain high-performing talent. The government proposal for deferment of tax payment by employees on ESOPs would allow startups to leverage the tool more effectively," he said. RR ANS
ANS

FM announces host of steps to boost growth of startups

New Delhi, Feb 1 () Finance Minister Niramala Sitharaman on Saturday proposed easing of tax payments for startups with a view to promote growth of budding entrepreneurs.
"In order to give a boost to startup ecosystem, I propose to ease the burden of taxation on the employees by deferring the tax payment by five years or till they leave the company or when they sell, whichever is earliest," she said while presenting the Union Budget for 2020-21.
ESOP (employee stock option plan) is a significant component of compensation for these employees, she said.
 Currently, ESOPs are taxable.
"This leads to cash flow problem for the employees who do not sell their shares immediately and continue to hold the same for long term," the minister said.
She said startups have emerged as an engine of growth for India's economy and over the past year, the government has taken several measures to handhold them and support their growth.
During their formative years, startups generally use ESOPs to attract and retain highly talented employees, she added.
Further, the minister said that an eligible startup having a turnover of up to Rs 25 crore is allowed a deduction of 100 per cent of its profits for three consecutive assessment years out of 7 years, if the total turnover does not exceed Rs 25 crore.
"In order to extend this benefit to larger startups also, I propose to increase the turnover limit from existing Rs 25 crore to 100 crore.
"Moreover considering the fact that in the initial years, a startup may not have adequate profit to avail this deduction, I propose to extend the period of eligibility for claim of deduction from the existing 7 years to 10 years," Sitharaman said. RR
BAL

Govt proposes easing of tax payments for startups

<ul class="summary-list"><li>An employee stock ownership plan provides employees with shares of a company, which makes them part owners.</li><li>Most ESOPs grant employees shares outright instead of requiring them to contribute to the plans.</li><li>ESOPs help employees save for <keyword id="11909870" type="UNKNOWN" weightage="60" keywordseo="retirement" source="Orion">retirement</keyword> while providing the company tax benefits and fostering overall growth. </li></ul>If you're looking to work for a company that values employees and gives you a real stake in its success, you might want to check out those that offer an employee stock ownership plan (ESOP). An ESOP is a retirement program that makes employees part owners of the company. The <a href="https://www.esop.org/" target="_blank" rel="noopener">National Center for Employee Ownership</a> (NCEO) estimates that more than 14 million people participate in 6,600 ESOPs nationwide. While some publicly traded companies offer ESOPs, the plans are more common among privately held employers. Here's a closer look at how ESOPs work and the advantages you could get by working for a company that provides this kind of benefit.<h2>How does an ESOP work? </h2>An ESOP is basically a trust fund a company establishes to purchase shares of stock from existing stockholders. Those shares are then allocated into accounts designated for individual employees, usually aligned with a percentage of their salary. The shares accumulate in the account until the employee retires, leaves the company, or some kind of special circumstance occurs, such as death or disability.Employees usually don't put any money into an ESOP. In most cases, the employer makes all contributions.Workers cash out by selling shares on the market or back to the employer. ESOPs are regulated under the <a href="https://www.dol.gov/general/topic/retirement/erisa" target="_blank" rel="noopener">Employee Retirement Income Security Act</a> (ERISA). Privately held ones must have company stock independently appraised for its fair market value at least once per year. "The appraisal firm needs to use at least three methods to come up with a fair market value for the stock and the employees," says Loren Rodgers, executive director for NCEO. "When they leave [or] when they pull stock out of the ESOP, [the employee] needs to get at least that fair market value."Quick tip: Rodgers says companies with ESOPs contribute an average of 9% of their payroll into the programs annually, while employer contributions to 401(k) plans are closer to 4%, meaning ESOPs could provide more "free" money toward your retirement goals.Be careful not to confuse ESOPs with employee stock option plans, which give workers a chance to purchase shares in the company at a specified price within a fixed window of time, providing the chance to acquire them at a discount to the market price. Most ESOPs grant shares of stock to employees outright. In that case, if the value of those shares never rises, or even falls, the employee hasn't lost anything by participating. The same is not always true for stock options. "With stock options, employees pay cash for the stock either directly with cash on hand or indirectly by exercising the option and immediately selling enough shares to cover the exercise price," explains Elliot Raff, Of Counsel at <a href="https://keightleyashner.com/" target="_blank" rel="noopener">Keightley and Ashner LLP</a>. "In an ESOP, employees 'buy' the stock allocated to their ESOP accounts by virtue of being and remaining employed and thereby becoming vested."Finally, Raff says ESOPS are subject to non-discrimination rules under ERISA and Internal Revenue Service regulations about annual limits on the value of allocations. Stock option plans are not, allowing companies to set their own rules for who benefits from this kind of program and how it will work.<h2>What are ESOP tax advantages?</h2>ESOPs offer tax advantages for both employers and employees. Contributions to an ESOP are tax deductible, and if a shareholder sells their stock to the ESOP, they may be able to avoid or defer paying capital gains taxes. "A selling shareholder may be able to defer capital gain on the sale to an ESOP," says Peter Jones, an attorney with <a href="https://www.tuckerellis.com/" target="_blank" rel="noopener">Tucker Ellis LLP</a> specializing in ESOPs. "That occurs if the company is taxed as a C corporation, the seller sells at least 30% of the outstanding stock to the ESOP, and the seller then invests in qualified replacement property (generally, securities offered by American-operating companies)." If an S corporation has an ESOP, earnings attributable to shares in the plan are not taxable. "Profits that are attributable to stock held by the ESOP 'pass-through' to a qualified retirement plan, and the ESOP pays no federal income tax, and even no state income tax in most states," Jones says. "If the ESOP owns 100% of the stock, neither the company nor the ESOP pay any federal or, in most instances, state tax."For employees, they get to invest in their retirement without paying taxes on the value of that money until they take distributions. To further delay paying taxes on ESOP earnings, they may also be able to sell their shares and roll over that money into an IRA or 401(k) account.<h2>How do ESOP distributions and payouts work? </h2>ESOP distributions work a little differently from other retirement plans and can vary from company to company. According to NCEO, <a href="https://www.nceo.org/articles/esop-participant-distribution-rules" target="_blank" rel="noopener">some general rules</a> that apply to most plans include:<ul><li>Distributions must begin the plan year following retirement age, death, or disability. </li><li>If you quit or are fired from your job, you can begin receiving distributions no later than six years after the plan year during which you leave has ended. </li><li>If the ESOP took out a loan to purchase shares you wish to collect on, distribution may be delayed until the loan is paid in full. </li><li>Shares can be distributed in a lump sum or over time in "substantially equal payments that are made no less frequently over annually over a period of not more than five years."</li></ul>ESOP participants may also be subject to vesting schedules. Rodgers explains that ESOPs have two options for vesting. The first is to grant 100% vesting once an employee completes three years of service, with none before then.The second is to grant 20% vesting every year starting in an employee's second year of service. ESOPs can choose any method to vest employees faster, but can't use a vesting schedule that would take longer. Companies with ESOPs are required to repurchase stock when an employee retires or leaves the company. However, Rodgers says private companies are only required to do so for two years following an event that qualifies for distribution. Most people cash out in the first year because after the second, there's no guarantee someone will buy their shares. If someone quits or is fired, they usually won't be able to cash out their ESOP shares right away. Federal law gives ESOPs as long as five years to distribute shares in these cases.Note: A 2021 NCEO study found 56% of companies with ESOPs also offer additional retirement plans. <h2>What are the pros and cons of ESOPs </h2>ESOPs provide a lot of benefits both for employers and their workers. But they might not be right for some companies, and there are some limitations to accessing the money that employee participants should consider. Here is a look at some of the pros and cons of ESOPs. <table style="border-collapse: collapse; width: 100%; height: 369px;" border="1"><tbody><tr style="height: 22px;"><td style="width: 50%; height: 22px;">Pros</td><td style="width: 50%; height: 22px;">Cons</td></tr><tr style="height: 347px;"><td style="width: 50%; height: 347px;"><ul><li>Retirement accounts grow without employees having to divert a portion of their pay.</li><li>Companies can take advantage of tax deductions and reduction in tax liability.</li><li>Shareholders can defer paying taxes on the sale of shares to the ESOP.</li><li>Companies with ESOPs tend to grow faster than they would be expected to before adopting the program.</li><li>Owners can build a legacy for the business they created and divest their interests in their own time.</li></ul></td><td style="width: 50%; height: 347px;"><ul><li>Capital gains taxes will be due on the appreciation in the share value.</li><li>They aren't always good for startups or struggling companies.</li><li>All your retirement eggs are in one basket and depend on company success to pay out.</li><li>You could lose money if the market value of the shares go down by the time you start collecting distributions, though you didn't invest actual cash to purchase shares.</li><li>Companies need to have an outside administrator for the program and annual independent evaluation of stock values.</li></ul></td></tr></tbody></table><h2>The financial takeaway</h2>ESOPs are generally beneficial for both companies and employees. They can foster a strong employee-owner culture that values training, education, innovation, and finding creative solutions. Working in this kind of environment can be very rewarding. Business owners can use an ESOP to establish a legacy for their company when they're ready to take a step back or even sell. The financial benefits for the business often outweigh the expenses, though ESOPs tend to work best for large companiesAn ESOP can be a very strong component of a retirement strategy. However, it's important to remember that they are entirely focused on the stock of a single company. Diversification is key when it comes to long-term investment, so it's a good idea to look into additional options, such as IRAs or 401(k) accounts as part of your bigger retirement plan. <a data-type="618407b41734c745130c1261">A guide to IRAs: Tax-advantaged investing accounts that help you save for retirement</a><a data-type="6182eaf71734c753865ecff0">Profit-sharing plans: Retirement accounts that give employees a percentage of a company's profits</a><a data-type="618065ddd17eda70db54a51c">457 plans: The retirement option for nonprofit and government workers</a><a data-type="615ca5bdea58a4786b42bcef">What to know about SIMPLE IRAs: Retirement accounts for small businesses and their employees</a>

An employee stock ownership plan is a retirement benefit that makes workers part owners of the company

<ul><li>When exercising your ESOP options, you need to pay for the shares at the exercise price. </li><li>There may be an additional tax burden if the <keyword id="173739" type="General" weightage="20" keywordseo="esops" source="Orion">ESOPs</keyword> are provided at a value lower than the fair <keyword id="6463972" type="General" weightage="20" keywordseo="market-value" source="Orion">market value</keyword> at the time of vesting. </li><li>If the company fails to perform well, or lacks successful liquidity events, the potential returns on ESOPs may remain unrealised. </li></ul>When talking about the glitzy world of start-ups, a discussion on employee stock ownership plan (ESOPs), always comes up. In recent news Swiggy announced that it will buy back shares worth $50 million from employees. Also, Paytm granted 1.7 million new ESOPs to employees. A few weeks ago Flipkart announced a $700 million ESOPs payout. However, the world of ESOPs may not all be as rosy as it seems at first glance. ESOPs work in a certain way and there are a lot of factors which need to fall into place before an employee can make a profit out of them. Therefore, one needs to understand that with start-ups coming under a lot of pressure due to an uncertain economic scenario and a funding crunch, have ESOPs lost their charm? “ ESOPs are often offered to outstanding performers to foster a sense of ownership, and nowadays, start-ups use them as a means to attract and retain top talent. However, it is essential to be aware that some companies might also offer ESOPs to compensate for situations when they cannot offer competitive salaries,’ says Anjali Raghuvanshi, Chief People Officer, Randstad India, a HR consulting firm. What this essentially means is that when taking up a job offer, do note if ESOPs are a part of the salary package as this may come at the cost of foregoing some salary. It is important to understand two major risks associated with ESOPs. Let us take a look. <cmsannotation type="cmsannotation" annotationid="You would need to fork out money upfront" comment="subhead" text="You would need to fork out money upfront">You would need to fork out money upfront</cmsannotation> Here is where owning ESOPs can get tricky. “There are two up-front costs you have to bear when you are exercising your ESOP options. The first cost is the amount you pay the company for those ESOPs,” says BM Singh, ESOP Expert &amp; Managing Partner, BMSA, a consulting firm. Suppose an employee is granted 1,000 ESOP options by a company. The exercise price or strike price of each option is ₹100. This means that the employee can purchase the company's shares at ₹100 per share at a future date, regardless of the market price at that time. Now, let's assume that the market price of the company's shares increases to ₹150 when the employee decides to exercise their ESOP options. To exercise the options, the employee needs to pay the exercise price, which is ₹100 per share. The cost to the employee to exercise their ESOP options would be ₹100,000. <cmsannotation type="cmsannotation" annotationid="Additionally, there may be a tax implication" comment="subhead" text="Additionally, there may be a tax implication">Additionally, there may be a tax implication</cmsannotation> The next is the tax implication that arises here. If the ESOPs are granted at a value lower than the fair market value during vesting, there could be an extra tax burden, resulting in potential tax liabilities before fully realising the value of the ESOPs. “ESOPs are taxable in the hands of the employees as perquisite u/s 17(2) of the IT Act. The taxable amount of such perquisite would be the fair market value (FMV) of the shares (computed in accordance with Rule 3(8) of the IT Act) on the date of exercising such option less any amount paid by the employee for such ESOPs,” says Suresh Surana, Founder, RSM India, an audit, tax and consulting firm. In the above example, the employee would need to pay tax on the taxable amount of ₹50,000 at the applicable tax rate. The exact tax amount will depend on the individual's income tax slab rate. <cmsannotation type="cmsannotation" annotationid="A bigger concern" comment="subhead" text="A bigger concern">A bigger concern</cmsannotation> Poor company performance and uncertainty of liquidity events may render ESOPs worthless. “If the company fails to perform well or lacks successful liquidity events, the potential returns on ESOPs may remain unrealised, potentially impacting the value of the effort and time invested over the years, “ says Raghuvanshi. The value of ESOPs is closely tied to the company's performance and growth potential. If the company's value decreases, it can negatively impact the value of your stock options, potentially making it challenging to sell your shares at a profit. Hence, it is important for an employee to evaluate the future prospects and growth of a company before making a decision to exercise the option. When an employee exercises the options, he should have trust in the company's future growth and performance. “The employee should also be aware about the exit possibilities in case of unlisted shares i.e. buyback track record, funding rounds etc,” says Akhil Chandna, Partner, Tax, Grant Thornton Bharat, a professional services firm. When exercising ESOPs, it is thus essential to conduct a thorough assessment of the company's current performance and financial well-being. This evaluation helps the employee make informed decisions about exercising their options. “Any significant changes since joining could impact the decision,” says Raghuvanshi. <cmsannotation type="cmsannotation" annotationid="Risk of ESOPs are higher in an early stage start-up" comment="subhead" text="Risk of ESOPs are higher in an early stage start-up">Risk of ESOPs are higher in an early stage start-up</cmsannotation> If a start-up is bootstrapped or in the idea phase, the risks are higher. In that case ESOPs are merely paper money. As the different rounds happen, the value of the ESOPs and the probability of liquidity increases. “You should see at which stage of the start-up you are entering. At each phase the value of ESOPs is different. So if you are joining a company just on the basis of ESOPs and not getting a reasonable salary and the company is in its early stages, then you should also focus on the cash component,” says Singh. If it has reached the Series A or Series B funding stage, then you can consider the value of ESOPs when joining and can consider it an important part of your salary package.

Explained: What accepting ESOPs, especially if joining a start-up, might entail

New Delhi, Feb 5 () With Finance Minister Nirmala Sitharaman proposing to ease the taxation burden on ESOPs for startups, the "so-called" last irritant for budding entrepreneurs have been removed and it is now a perfect ecosystem for them in the country, the CBDT chief has said.CBDT Chairman P C Mody said most of the issues pertaining to startups were already addressed in last budget and the remaining matter on ESOPs (employee stock option plans) was resolved this time.The Central Board of Direct Taxes frames policy for the Income Tax Department and it functions under the Union Finance Ministry."... So, the so-called last irritant for startups has also been removed... It is now a perfect ecosystem for the startups," he told .Sitharaman in the Budget proposed to ease the burden of taxation on the employees by deferring the tax payment on ESOPs by five years or till they leave the company or when they sell their shares, whichever is earliest.During their formative years, start-ups generally use ESOP to attract and retain highly talented employees. ESOP is a significant component of compensation for these employees.Currently, ESOPs are taxable as perquisites at the time of exercise. This leads to cashflow problem for the employees who do not sell the shares immediately and continue to hold them for the long term.Explaining, Mody said a point was raised if some kind of deferment could be made which is what "we have accepted"."So an employee now can choose to defer his payment of tax on ESOPs, say up to 5 years provided they continue with the company," he said.If that employee would quit from the company or sells those shares earlier, then it would be taxable at the time of sale but a facility has been given, he added. NES/RR ABHABH

Last irritant of startups gone in Budget; perfect ecosystem for them in India: CBDT

New Delhi, Feb 1 () IT industry body Nasscom on Saturday said the government's Budget proposal to relax ESOP norms and dividend distribution tax removal for companies were positive, but lacked focus on accelerating services exports and R&amp;D from India.
 Nasscom President Debjani Ghosh said Budget 2020-21 articulated how technology is the bedrock of development and growth in India, and said the announcements on quantum computing centre, data centre policy and intellectual property rights (IPR) portal will create the digital infrastructure for industry and government.
 "It's heartening that Budget 2020 has simplified the employee stock option plan (ESOP) policy and extended the tax incentives for up to Rs 100-crore startups over a 10-year period. Incentives for MSMEs like audit exemptions for up to 5 crore companies will enable ease of business for small companies," Nasscom noted.
 It added that the removal of dividend distribution tax (DDT) -- a long-pending request from the industry -- will benefit companies that have global operations.
 "However, the Budget lacked focus on accelerating service exports from the country... a future-ready special economic zone (SEZ) policy is needed and there was no indication of that in the Budget," Nasscom rued.
 The focus on enabling more research and development (R&amp;D) solutions from India through specific programs was not covered, while schemes on upskilling/reskilling did not find any mention in the Budget, it pointed out.
 Nasscom said it will publish a more detailed analysis on the Budget and seek specific clarifications on key issues.
 The Budget has proposed deferring the tax payment on ESOPs by five years, until employees leave the company, or when they sell their shares - whichever is earlier. ESOPs give ownership interest to workers and are an important tool for companies, especially startups employees to reduce attrition rates and retain top talent.
 Internet and Mobile Association of India (IAMAI) said the proposals will promote entrepreneurship, and will boost investments.
 "The focus on technology and digital infrastructure is a step towards realising the trillion-dollar economy and will open up new opportunities for demand generation," IAMAI President Subho Ray said.
 The proposal to set up of investment clearance cell for entrepreneurs and offering assistance in funding is a welcome move, he added.
 L&amp;T Infotech CEO and MD Sanjay Jalona said the Budget's focus on artificial intelligence and targets set for quantum computing is a step in the right direction to strengthen India's position as a frontrunner in exponential technologies.
 "The decision to build data centre parks for the private sector is a step towards making India a data economy superpower," Tech Mahindra MD and CEO CP Gurnani said. SR ANS
ANS

Relaxation of startup ESOP norms, DDT removal for cos positive for IT industry: Experts

New Delhi, Feb 10 () Budget proposals for start-ups will help promote growth of budding entrepreneurs in the country, financial advisory firm Findoc Group said on Monday. Hemant Sood, the Managing Director of Findoc Group, said the government's move to roll out reforms like five-year tax holiday for employee stock option plan and tax exemption for start-ups with a turnover of less than Rs 100 crore for 10 years are steps in the right direction. "By reducing tax burden of employees, the government will help start-ups ride on ESOPs programme even more. This move will ensure key employees are retained leading to their own skin in the start-up whilst ensuring future benefits for such key and critical employees in such start-ups," he said in a statement. Change in tax structure for start-ups will surely impact global ease of doing business, he said. "It is a clear sign for start-ups that the government has also invested in their success and would like to remove as many barriers as possible," he said. "The announcement on seed fund support for early age start-ups will also boost market sentiments in the months to come," Sood said. RR MRMR

Budget announcements for startups to boost budding entrepreneurs: Findoc Group

In spite of major concessions announced by way of an ordinance in October 2019, the Indian economy continued to dwindle in the backdrop of the global economic meltdown. The current economic situation necessitated bold steps from our Hon’ble Finance Minister (‘FM’) to present a simplified budget that would result in a quick economic turnaround. However, whether such a ‘Simplified’ budget really unlocked potential for an economic turnaround, remains a question. Some key amendments coupled with their challenges are listed below: Some key amendments: Personal Tax Regime (‘PTR’): In line with the Concessional Tax Regime (‘CTR’) introduced by the Hon’ble FM in October 2019 which focused solely on corporates, a PTR has been introduced which focuses on providing alternative lower tax rates to individuals/HUF. The aforesaid concessional tax rate is applicable subject to the following conditions: <ol><li>The Individuals and HUFs having various incomes would not be allowed to claim any deductions/incentives, them being - <ul><li>Certain business <keyword id="891931" type="PERSON" weightage="20" keywordseo="deductions">deductions</keyword> and deductions from other incomes</li><li>House property deduction</li><li>Salary deductions including standard deduction and professional tax</li><li>Major deductions under Chapter VI-A (i.e. deductions under section 80C, 80D, etc) and</li><li>Set-off/carry forward of losses in relation to the above </li></ul></li></ol><ol><li>Further, <keyword id="1064766" type="ORGANIZATION" weightage="20" keywordseo="alternative-minimum-tax">Alternative Minimum Tax</keyword> (‘AMT’) shall not be applicable to an individual/HUF opting for PTR. Consequently, carry forward and set off of AMT credit shall not be allowed.</li></ol>In view of the above amendments, an individual having salary income as a major source of income and making investments in various schemes/instruments (For example, LIC premiums, PPF, ELSS, etc.) may not consider opting for PTR. It needs to be seen whether such a scheme is welcomed by the taxpayers at large or not. Dividend Distribution Tax (‘DDT’) Abolition: The Finance Bill proposes to abolish DDT in the hands of domestic companies and tax the same in the hands of the recipient. Accordingly, domestic companies declaring dividends shall be required to deduct TDS @ 10% on dividends exceeding INR 5,000 per shareholder. Further, it has been proposed to provide a deduction of interest expense of upto 20% of dividend income received in the hands of the shareholders under income from other sources. Lastly, in order to remove the cascading effect of taxes, dividend distributed by companies for a particular year (subject to conditions) shall be allowed as a deduction from dividend income. The benefit of deduction has also been extended to companies opting for CTR. However, the amendment leaves certain areas which need to be addressed: <ul><li>No scientific mechanism exists to allow deduction of expenses to the shareholders and only an ad-hoc deduction of interest expense capped at 20% of dividend income is allowed</li><li>In view of the above, the Company vs LLP structure needs to be re-evaluated</li><li>In case of banks and NBFCs where dividend income is a major source of business income, no separate provisions have been carved out</li></ul>Though the above is in line with the longstanding demand of the corporate world, only time will be able to tell whether the objective of earning higher taxes is achieved by these amendments. The above amendments also open-up the question of selection of an offshore jurisdiction for investing in Indian companies. Other Key Amendments A. Start-ups – Rationalising tax provisions and ESOP Taxation With a view to rationalise the tax deduction provisions for start-ups, the following amendments are proposed: <ul><li>100% profit deduction for an eligible start-up for any 3 consecutive years out of 10 years; and </li><li>Threshold of turnover for an entity, to be eligible as a start-up, has been increased to INR 100 Crores </li></ul> Further, in order to ease the burden of tax payment for employees of eligible start-ups, it is proposed to defer the timing of taxation of ESOPs perquisites. The amendment proposes to tax ESOP at the earliest of the following event: <ul><li>Expiry of 5 tears from the end of the relevant financial year; or</li><li>Date of sale by individual taxpayer; or</li><li>Date of cessation of employment</li></ul>These are welcome steps that would go a long way in providing ease of doing business for start-ups. Existing companies in the technology space must evaluate the possibility of obtaining necessary approval to claim exemption. B. Tax withholding on e-commerce transactions TDS @ 1% shall be made applicable on payments by e-commerce operators (who own/operate a digital e-commerce platform) to e-commerce participants (who sell goods/providing services/both). Further, exception is provided for payments to such a participant who is an individual/HUF if the transaction value during a particular AY is less than INR 500,000 This amendment will not only add compliance obligation on the e-commerce platforms but would also bring larger population of service providers and goods suppliers under the tax net. C. Increasing Tax Audit Turnover Threshold The FM proposes to increase the turnover threshold for tax audit applicability to INR 5 Crores, provided that the aggregate cash receipts/cash payments by such taxpayer do not exceed 5% of the total receipts/payments respectively during the financial year. This move is again intended with a view to move towards a cashless economy. D. Stay by the Hon’ble Income-tax Appellate Tribunal (‘ITAT’) ITAT may grant a stay of demand for upto a maximum of 365 days on a condition that the taxpayer deposits not less than 20% of the amount of tax, interest, fee, penalty, etc. Though the law seems to have been proposed, it would need to be seen whether condition can be applied to the judicial power of adjudicating authority. Since taxpayers at various levels are now being provided alternative tax regimes, the same may lead to complication of the tax regime with minimal benefits. TDS levied on dividend payments to shareholders/payments by e-commerce operators shall only increase the TDS compliance burden of large companies and e-commerce MNCs respectively. The impact of such complications and compliances on ease of doing business need to be evaluated. 
 <div type="image" title="Pranay Bhatia" msid="73984955" hostid="261"></div> Disclaimer: This article is written by Pranay Bhatia, a Partner and Leader of Tax &amp; <keyword id="344310" type="COMPANY" weightage="20" keywordseo="Regulatory-Services">Regulatory Services</keyword> at BDO India. The opinions expressed are entirely that of the author.

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