By Mr Ankit Prasad,
India’s startup industry has a crucial role to play in 2021 as the economy recovers and businesses return to pre-pandemic levels. The primary expectation is to provide more tax incentives to startups in the forthcoming budget to support their growth trajectory. It is equally crucial to revisit taxations on ESOPs given by startups. They are extremely beneficial for most players who have limited financial resources and want to attract the best available talent in the industry.
They also give a great sense of ownership and entrepreneurship. At present, startup employees are required to pay tax whenever they sign up for ESOPs with a vesting schedule and also pay taxes on capital gains whenever they redeem their ESOPs. Budget 2020, however, deferred TDS requirement for such ESOPs share allotment for registered startups.
This deferment also has two preconditions that have to be made more attractive. First, it is primarily limited to 5 year period. 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.
(The author is the Founder and CEO of Bobble AI)