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<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

Indian startup founders on Monday said that to explore a comprehensive digital India, the <keyword id="6360189" type="General" weightage="100" keywordseo="union-budget" source="Orion">Union Budget</keyword> for FY24 must leverage the full inherent potential of the homegrown technology industry to become champions of digitisation. Gautam <keyword id="893041" type="General" weightage="80" keywordseo="nimmagadda" source="Orion">Nimmagadda</keyword>, Founder and CEO of Quixy, a cloud-based no-code application development platform, said that currently, startups can avail of a tax holiday for three years since incorporation. "However, the ideal exemption should be 10 years, in view of the high cost of solution development. As positive employment drivers, startups also require government intervention in the expensive affair of hiring and retaining the right talent to drive growth," Nimmagadda said in a statement. "To lead the startups onwards and upwards, a single-window process to enable the right financial support from government would be incentivising for MSMEs," he added. According to ESOPDhan co-founder <keyword id="576027" type="General" weightage="80" keywordseo="nitin-agarwal" source="Orion">Nitin Agarwal</keyword>, the budget can reduce the holding period of ESOP shares of unlisted companies from two years to one year for purposes of capital gain. "This would make ESOPs a more attractive tool to retain and reward employees, especially among startups that are today seen as major job creators," Agarwal added. 2023 is already shaping up to be a watershed moment for the gaming industry. With the government releasing draft online gaming rules earlier this month, the burgeoning sector will see a lot more success this year. According to Sai Srinivas, Co-founder and CEO of MPL, the industry hopes to get clarity in a few areas. "The first is the GST mechanism on online gaming. We hope the government provides clarity on the tax slab applicable on skill gaming. Another relates to the AVGC fund set up as part of the AVGC Promotion Task Force announced in last year's budget," he mentioned. Access to financial support "will be a tremendous boost to young talented developers and designers, and will accelerate the push to 'Create in India' and take made-in-India games to the world," he added. <keyword id="16292225" type="General" weightage="80" keywordseo="dhruv-jolly" source="Orion">Dhruv Jolly</keyword>, Founder and MD, <keyword id="16292224" type="General" weightage="80" keywordseo="taponn" source="Orion">TapOnn</keyword> digital, said that the budget would include some assistance for qualifying firms under the 'Startup India Scheme' in terms of the number of taxes that must be filed, the frequency of filing, or the tax slabs. "We might witness a strong emphasis on attracting more foreign investment, making the registration and compliance process more easy and fast, and strengthening economic ties with other countries in the Indo-Pacific region," Jolly said. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/corporates/news/adani-group-stocks-witness-high-volatility-amidst-war-of-words-between-the-company-and-hindenburg-research/articleshow/97437171.cms">Adani Group stocks witness high volatility amidst war of words between the company and Hindenburg Research</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/business/startups/news/auto-parts-sourcing-startup-capgrid-raises-7-million-from-nexus-venture-others/articleshow/97437294.cms">Auto parts sourcing startup CapGrid raises $7 million from Nexus Venture, others</a>

Budget expectations: Startups seek 10-yr tax holiday, less holding period of ESOP shares

<ul><li>In case of listed companies where the market value of the share is lower than the predetermined price in <keyword id="120103" type="General" weightage="80" keywordseo="esop" source="Orion">ESOP</keyword>, the employee should not exercise the option.</li><li>It is crucial to consider the company's financial health and growth prospects when assessing the worth of ESOPs.</li><li>You can sell a portion of the shares obtained through exercising your ESOPs right away to cover the costs associated with exercising, including any taxes owed.</li></ul>A few days ago, Infosys offered 5.11 lakh shares to its employees under Employee Stock Ownership Plans (ESOPs). ESOPs are extensively employed by corporations worldwide to incentivize employees to become stakeholders in the company. By offering employees the opportunity to own equity in the company, ESOPs aim to align their performance and dedication with the organization's success. In recent years, ESOPs have gained significant popularity, particularly among startups, as an effective tool for attracting and retaining top talent. Startups leverage ESOPs to not only reward employees but also to create a sense of ownership and motivation, driving their commitment and contribution to the company's growth.We take a look at what you need to keep in mind when exercising your stock options. “Under ESOP, employers grant options to its employees which are exercisable against company’s shares at future date, on fulfillment of defined vesting conditions. For this purpose, the employee pays the exercise price (set as zero or less than fair market value (FMV)) at the time of exercise of shares in future. Therefore, no upfront costs are associated with ESOPs at the time of grant,” says Akhil Chandna, Partner, Tax, <keyword id="10410446" type="General" weightage="50" keywordseo="grant-thornton-bharat" source="Orion">Grant Thornton Bharat</keyword>, a professional services firm. <cmsannotation type="cmsannotation" annotationid="Understanding exercise options" comment="subhead" text="Understanding exercise options">Understanding exercise options</cmsannotation> “Most reputed companies have a vesting period of four years, with 25% of the ESOPs becoming eligible for exercise each year after the initial one-year cliff. This means that after the first year, employees can exercise 25% of their ESOPs and subsequently exercise 25% over the following three years on a monthly pro-rata basis,” says Ajinkya Kulkarni, Co-Founder, and CEO, <keyword id="12504599" type="General" weightage="50" keywordseo="wint-wealth" source="Orion">Wint Wealth</keyword>, an online investment platform focussed on fixed income products. There are two common types of approaches when it comes to exercise prices. The first approach sets the exercise price as the face value of the shares. Thus it is significantly cheaper for employees to purchase the shares. The second approach involves the employee paying the market value of the shares at the time of exercising the option, where the exercise price would be higher. Employee-friendly companies may offer an exercise period of up to 10 years after the employee leaves the organization, providing greater liquidity opportunities for employees. “A sufficient exercise window is crucial since the notional gains from exercising an option are immediately taxable for employees, even though the actual wealth is realized upon liquidation of the shares,” says Kulkarni. <cmsannotation type="cmsannotation" annotationid="What to keep in mind when exercising options" comment="subhead" text="What to keep in mind when exercising options">What to keep in mind when exercising options</cmsannotation> When exercising an option see if there is a condition that the option will lapse if you do not exercise. “Then you should exercise. But if there is an option that it will be carried forward, there is no need to exercise immediately,” says <keyword id="5754055" type="General" weightage="50" keywordseo="bm-singh" source="Orion">BM Singh</keyword>, ESOP Expert &amp; Managing Partner, BMSA Consultancy. The actual value of ESOPs in a company is closely tied to its future performance and market valuations. Even if ESOPs hold a significant monetary value on paper, if the company's performance is poor, their true benefits may be limited. It is crucial to consider the company's financial health and growth prospects when assessing the worth of ESOPs. Ultimately, ESOPs are most advantageous when granted by companies with strong performance and promising future prospects.Therefore, employees should conduct thorough background research before accepting an offer that includes a substantial ESOP component. Chandna says that in the case of listed companies where the market value of the share is lower than the predetermined price in ESOP, the employee should not exercise the option. For unlisted companies, the employee should also research the company’s buyback track record during the vesting period and whether the company will raise capital through a funding round etc, to know the exit possibilities. <cmsannotation type="cmsannotation" annotationid="Tax implications at the time of exercise" comment="subhead" text="Tax implications at the time of exercise">Tax implications at the time of exercise</cmsannotation> Taxability of ESOPs first occurs at the time of exercising the options, where the perquisite value of the ESOPs is deemed taxable under the category of 'salary' in the hands of the employees. When employees exercise their ESOPs, the difference between the fair market value of the shares at the time of exercise and the exercise price is treated as a taxable perquisite. This value is added to the employee's salary and subject to applicable income tax regulations. “Please note that the taxable value of perquisite would be computed basis the date of exercise of options /units, however, the same would be taxable in the year in which shares are actually allotted/ transferred to the employees,” says Chandna. <table style="border-width: initial; border-style: none;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Name of employee </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">A </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Grant date of ESOP </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1 April 2023 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Vesting date of ESOP </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1 April 2024, 1 April 2025 (50% at each date) </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Exercise date of ESOP/date of allotment of shares </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1 April 2026 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">FMV as on Exercise date i.e. 1 April 2026 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹1,000 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Exercise price </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;background-color:#ffffff;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">₹100 </td></tr></tbody><tbody></tbody><tbody></tbody></table> In the above illustration, the taxability would arise in the hands of Mr. A on exercise date i.e. 1 April 2026 (FY 2026-27). The taxable value would be ₹900 (i.e. ₹1000 as reduced by ₹00) on 1 share. Source: <keyword id="131240" type="General" weightage="80" keywordseo="grant-thornton" source="Orion">Grant Thornton</keyword> <cmsannotation type="cmsannotation" annotationid="How to minimize out of pocket expenses when exercising ESOPs" comment="subhead" text="How to minimize out of pocket expenses when exercising ESOPs">How to minimize out of pocket expenses when exercising ESOPs</cmsannotation> “To minimize the duration between tax obligations on notional gains and the actual gains, it is advisable to exercise ESOPs closer to liquidity events,” says Kulkarni. You can sell a portion of the shares obtained through exercising your ESOPs right away. The proceeds from the sale can be used to cover the costs associated with exercising, including any taxes owed. This strategy effectively lowers your out-of-pocket expenses by utilizing the funds generated from selling the shares. “Let us say that you are entitled to exercise 50 shares. If you get a chance to sell 10 shares in the secondary market, then you can sell the shares and cover the expenses from the proceeds,” says Singh. By creating a budget and developing a financial plan, you can ensure that you have the necessary funds for exercising ESOPs while minimizing your out-of-pocket expenses. Through careful financial management, such as setting aside money in advance or reallocating your financial resources, you can mitigate the impact on your personal expenses when it comes time to exercise your ESOPs.

What you need to know when you exercise your stock option plan

<ul><li>Tiger Global, Think Investments and Malabar Investments participated in the round.</li><li>The company will be exploring mergers and acquisitions to expand its business.</li><li>A part of the funding will also be used to buyback shares from the company's employees.</li></ul>Messaging platform <keyword id="755674" type="COMPANY" weightage="20" keywordseo="GupShup">Gupshup</keyword>, which became a unicorn earlier in April 2021, has raised an additional funding of $240 million in a follow-on funding round. Several marquee investors like Fidelity Management and Research Company LLC, Tiger Global, Think Investments, Malabar Investments, Harbor Spring Capital participated in the round, along with certain accounts managed by Neuberger Berman Investment Advisers LLC, White Oak, and others. A unicorn is a startup valued at or more than $1 billion. The 17-year-old company will use this funding to invest in its product and also enable buyback shares from existing and former employees. The company will also be providing partial exits to few of its initial investors. Gupshup is also exploring merger and acquisition (M&amp;A) opportunities to expand its business, it announced in the press release. “We have followed Gupshup’s progress for a long while and believe that they are the most evolved customer communications platform In India and increasingly in other emerging markets, with a leadership position in the most attractive and fastest growing sub-segments of the market,” said Sumeet Nagar, managing director of Malabar Investments. Gupshup was founded by Beerud Sheth in 2004. It is a conversational messaging platform that enables businesses to manage internal communications. The company provides a platform for developers to build bots for SMS, Twitter, Slack, WeChat, Teamchat and others. The company’s clientele is spread across banking, ecommerce, hospitality, consumer goods and other industries. A few big names in its client list are Zomato, Flipkart, HDFC Bank, and others. SEE ALSO <a href="https://www.businessinsider.in/business/startups/news/the-whole-truth-a-healthy-packaged-food-brand-raises-6-million-from-sequoia-capital/articleshow/84815594.cms">The Whole Truth, a ‘healthy’ packaged food brand, raises $6 million to enter new categories </a> <a href="https://www.businessinsider.in/stock-market/news/rolex-rings-ipo-opens-on-july-28-and-closes-on-july-30-with-a-price-band-of-880-900/articleshow/84813639.cms">Rolex Rings IPO opens today with a price band of ₹880-900</a>

Business communication platform Gupshup raises $240 million, to buyback ESOPs

<ul><li>With <keyword id="8420431" type="UNKNOWN" weightage="20" keywordseo="budget-2021">Budget 2021</keyword> around the corner, India’s IT body NASSCOM has submitted its suggestions for <keyword id="6362513" type="UNKNOWN" weightage="20" keywordseo="startups">startups</keyword> which includes further tax relaxations for employee stock ownership plans. </li><li>NASSCOM’s public policy head said that <keyword id="173739" type="PERSON" weightage="20" keywordseo="Esops">ESOPs</keyword> should be taxed only when an employee sells the shares.</li><li>During Budget 2020, Finance Minister Nirmala Sitharaman had said that ESOPs can be taxed within five years or when they leave the company or when they sell their shares, whichever is earliest.</li></ul>When India’s Finance Minister Nirmala Sitharaman announced tax relaxations for Employee Stock Ownership Plans (ESOPs) during Budget 2020, India’s entrepreneurs welcomed the decision. But one year down the line, they are having second thoughts. “The Finance Minister had relaxed the conditions with respect to the Employee Stock Ownership Plans but that’s not sufficient based on the industry feedback. What the industry really requires is that the liability of paying the tax should be deferred to the time when the shares are actually sold by the employees,” Ashish Aggarwal, Nasscom’s Public Policy head <a href="https://twitter.com/nasscom/status/1352200095735791617">shared </a>the suggestions the IT body has sent to the government. <table style="border-width: initial; border-style: none; width: 468pt; table-layout: fixed;"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">What Budget 2020 said </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Budget 2021 demand from NASSCOM </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">ESOPs can be taxed within five years or when they leave the company or when they sell their shares, whichever is earliest. </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">ESOPs should be taxed only when an employee sells the shares, when they have the liquidity. </td></tr></tbody></table> Entrepreneurs too agree. “Most startups, irrespective of the sector they operate in, typically take more than five years to list themselves in the stock exchange and become a listed company or carry out an exit or sell-out. Second, it does not apply to an employee who is exiting a company as an employee. So, a person who has already spent several years in a company and wishes to move on, his ESOPs earned during employment will not be eligible for deferment of taxes. In crux, I would urge the government to review these preconditions to support the startup industry at large,” said Ankit Prasad, Founder and CEO, Bobble AI. In the past year, multiple startups have been buying back shares from their employees as a way of rewarding them. Recent startups which rolled out ESOP buyback plans <table style="border-width: initial; border-style: none; width: 468pt; table-layout: fixed;"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Swiggy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">$7-9 million <a href="https://entrackr.com/2020/11/swiggy-to-reward-its-employees-with-esop-liquidity-program/">(reported value)</a> </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Unacademy </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">$4 million </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Urban Company </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">$5 million </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Zerodha </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">$8.7 million </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">CRED </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">$1.2 million </td></tr></tbody></table> However, Archit Gupta, founder and CEO of ClearTax believes that just deferment of tax isn’t enough, instead some exemption of tax on sale of ESOPs should be brought in. “It can become an effective means to attract and retain talent,” Gupta told Business Insider. But a crucial question still remains – who can avail this benefit? Aggarwal said the benefit should be extended to all startups and not just eligible startups. “DPIIT on its platform has over 40,000 startups but out of that only 400 are eligible startups, who have got an approval of certification for tax benefits,” he said. SEE ALSO: <a href="https://www.businessinsider.in/defense/news/us-new-president-joe-biden-will-oppose-new-delhis-5-5-billion-deal-with-russia-for-the-s-400-missile-as-per-washington-d-c-based-expert/articleshow/80382062.cms">INTERVIEW: Joe Biden may be as harsh as Donald Trump if India insists on buying S-400 missiles from Russia, says a Washington D.C-based expert</a> <a href="https://www.businessinsider.in/business/auto/news/bajaj-auto-just-posted-a-record-quarter-as-pent-up-demand-brings-highest-ever-sales-for-its-signature-bikes-pulsar-and-boxer/articleshow/80384430.cms">Bajaj Auto just posted a ‘record quarter’ as pent up demand brings highest ever sales for its signature bikes – Pulsar and Boxer</a>

NASSCOM says Budget 2021 should ensure ESOPs are taxed only when shares are sold

Indian start-up companies are looking at 'reverse flipping' - not a cricket terminology - with easy access to capital from private equity and venture capitals, changes in rules regarding round tripping, and the growing maturity of India's capital markets, states the Economic Survey 2022-23. The Survey was tabled in the Parliament on Tuesday. According to the Indian government the above measures have not only slowed down 'Flipping' but companies are also exploring 'Reverse Flipping'. Well, 'Flipping' and 'Reverse Flipping' are not cricket shots. The survey said many Indian companies have been getting headquartered overseas, especially in destinations with favourable legal environments and taxation policies. The technical jargon for this may be identified as 'Flipping', which is the process of transferring the entire ownership of an Indian company to an overseas entity, accompanied by a transfer of all intellectual property rights and all data hitherto owned by the Indian company. "It (flipping) effectively transforms an Indian company into a 100 per cent subsidiary of a foreign entity, with the founders and investors retaining the same ownership via the foreign entity, having swapped all shares," the survey notes. Typically, "Flipping" happens at the early stage of the start-ups, driven by commercial, taxation and personal preferences of founders and investors. Some companies decide to "Flip" because the major market of their product is offshore. Sometimes, investor preferences like access to incubators drive the companies to "Flip" as they insist on a particular domicile. Some companies prefer to domicile in countries where they would like to access Capital Market later for better valuations and ticket size. Better protection and enforcement of IP and tax treatment of Licensing revenue from IP, residential status of Founders, and agile corporate structures have been the reasons for "Flipping" in the past. "Many investors/private equity (PE) funds are based in the US and other places. They also exert pressure on the Indian startup entrepreneurs to move out of India and house their IPRs overseas," an entrepreneur had told IANS preferring anonymity. "Technology companies, primarily B2B, software as a service (SaaS) players and deep tech businesses tend to move out to the US and some towards Singapore. The reason they start in India to begin with is the entrepreneurial talent, active investing ecosystem, solid tech employees and most importantly the ability to develop and run pilots at competitive costs," Sarath <keyword id="293733" type="General" weightage="80" keywordseo="naru" source="Orion">Naru</keyword>, <keyword id="191679" type="General" weightage="80" keywordseo="managing-partner" source="Orion">Managing Partner</keyword>, Ventureast, one of the long standing venture capital firms in India had told IANS. According to Naru, the primary reason for them to move out is to be near their market. "Indian market tends to be small for these businesses and not economically viable to continue to invest in technology and be competitive against global players. The US and Southeast Asia offer large ready markets and it makes most economic and strategic sense to be close to the markets," Naru remarked. "Other than the IPR housing reason, investors like the tax regime in certain countries; lower income tax and capital gains taxes. This also attracts the startups to move and later the founders become Non-Resident Indians (NRI)," Kris Gopalakrishnan, Chairman, <keyword id="2602340" type="General" weightage="80" keywordseo="axilor-ventures" source="Orion">Axilor Ventures</keyword> told IANS. "Some of these governments give specific incentives like rent reimbursements, grants based on local employment etc. Further, the access to capital which does not invest in Indian companies. Finally, <keyword id="88599" type="General" weightage="80" keywordseo="sas" source="Orion">SAS</keyword> companies, especially enterprise SAS, move to the US/UK to be closer to the enterprise customers," Gopalakrishnan added. The Economic Survey said to accelerate 'Reverse Flipping', certain measures like the following are possible: i. Simplifying the process for grant of "Inter-Ministerial Board (IMB) certification" for Start-ups ii. Further simplification of taxation of Employee Stock Options (ESOPs) iii. Simplifying multiple layers of tax and uncertainty due to tax litigation iv. Simplifying procedures for capital flows: Many countries, such as US and Singapore, have easier corporate laws, with lesser restrictions on the inflow and outflow of capital and treatment of Hybrid Securities v. Facilitating improved collaboration and partnerships with established private entities to develop best practices and state-of-the-art start-up mentorship platforms vi. Exploring the incubation and funding landscape for start-ups in emerging fields like social innovation and impact investment. The flipping phenomenon mentioned above reflects start-ups venturing out for short-term gains in the dynamic, uncertain geopolitical world. However, the flip can be reversed with the collective action by the government related regulatory bodies and other stakeholders. SEE ALSO: <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/in-a-major-clean-up-drive-bmc-sacks-55-staffers-for-corruption-suspends-134-for-graft-crimes/articleshow/97491919.cms">In a major clean-up drive, BMC sacks 55 staffers for corruption, suspends 134 for graft, crimes</a> <a target="_blank" class="c-link c-message_attachment__title_link" href="https://www.businessinsider.in/india/news/sc-suggest-nirav-modis-bro-in-law-to-give-letter-of-authority-to-cbi-to-access-offshore-bank-accounts/articleshow/97493054.cms">SC suggest Nirav Modi's bro-in-law to give letter of authority to CBI to access offshore bank accounts</a>

Indian start-ups are looking at reverse flipping says Economic Survey

<ul><li>Logistics startup <keyword id="53463" type="COMPANY" weightage="20" keywordseo="blackbuck">Blackbuck</keyword> raised $150 million in a series D round led by <keyword id="6361649" type="UNKNOWN" weightage="20" keywordseo="Goldman-Sachs">Goldman Sachs</keyword> Investment Partners and Silicon Valley-based Accel. </li><li>Blackbuck employees have the option to liquidate 25% of their total vested stocks, at the current stock price of the company.</li></ul>In the Indian startup world, talks have been doing the rounds – which one is going to hit the unicorn club next? And if you have been a part of these discussions, two logistics startups names have always come in – <keyword id="3156357" type="PERSON" weightage="20" keywordseo="Rivigo">Rivigo</keyword> and Blackbuck. All eyes have been on funding announcements by either of these startups, to know that they have ferried their way into being a unicorn. Well, Blackbuck announced its funding on Wednesday, and although it has fallen a few million short of being a unicorn (it is currently valued at $950 million) – it had another interesting Employee Stock Ownership Plan (<keyword id="120103" type="PERSON" weightage="20" keywordseo="Esop">ESOP</keyword>) round. The online marketplace for trucking has raised $150 million from Goldman Sachs Investment Partners and Silicon Valley-based Accel, along with Wellington, Sequoia Capital, B Capital and LightStreet and existing investors Sands Capital and International Finance Corporation. “With this round of financing, we will invest to deepen our presence across the national market. Significant investments will be made into product development and data sciences, both these dimensions are core to BlackBuck’s marketplace approach”, said Rajesh Yabaji, CEO &amp; Co-Founder of BlackBuck. However, along with this round Blackbuck employees had the option to liquidate 25% of their total vested stocks, at the current stock price of the company. According to the company’s official statement, over the last four years, the company’s employee stock option (ESOP) plan created a cumulative value of over $43 million and the company continues to invest heavily in this direction. The logistics startup made this offer available to its employees for the second time. In 2017, when the company was still an early entrant in the today’s $150 billion long haul road transportation industry in India, had offered its employees to liquidate their stocks for <a href="https://inc42.com/buzz/blackbuck-logistics-esop-repurchase-plan/">11X</a> returns. The move comes in to ensure employee growth along with the company’s growth. BlackBuck has over 300,000 trucks and 60,000+ fleet owners on its platform and services major companies including Coca Cola, HUL among others. See Also: <a href="https://www.businessinsider.in/delhivery-raises-395-million-from-softbank-enters-the-unicorn-club-of-india/articleshow/68287009.cms">Delhivery becomes India’s first unicorn in 2019, thanks to SoftBank</a> <a href="https://www.businessinsider.in/private-equity-and-venture-capital-deals-in-india-were-worth-10-billion-in-q1-2019/articleshow/68716660.cms">Indian funding deal value in the first three months of 2019 is over half of last year's total</a>

This Indian startup’s latest funding is also going to make its employees rich

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

<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>

You Searched For "esop buyback indian startups" and got 9 results

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

Anagh Pal

Budget expectations: Startups seek 10-yr tax holiday, less holding period of ESOP shares

IANS

What you need to know when you exercise your stock option plan

Anagh Pal

Business communication platform Gupshup raises $240 million, to buyback ESOPs

Kritti Bhalla

NASSCOM says Budget 2021 should ensure ESOPs are taxed only when shares are sold

Sanchita Dash

Indian start-ups are looking at reverse flipping says Economic Survey

IANS

This Indian startup’s latest funding is also going to make its employees rich

Sanchita Dash

Startups hail Budget for relaxing ESOPs norm

PTI

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

Sanchita Dash

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