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 PTI.
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.
Earlier, a KPMG report has stated that the recent 'slowdown' in the Indian economy, start-ups are emerging and playing a crucial role of not only sustaining but also giving growth impetus to the overall economy.
The report said the golden triangle of government, private sector and academia are important players who can provide the impetus needed to grow the start-up eco system.
The 'slowdown' in the economy could be partly blamed on credit crisis due to NBFC (non-banking financial companies) funding being 'dried up' and the banking system's continued struggle with NPAs (non-performing assets), it said.
Union Finance Minister Nirmala Sitharaman on Saturday presented the Budget for the Financial Year 2020-21. "This budget is woven around three prominent themes, aspirational India, in which all sections of society seek better standards of living, economic development for all, indicated in Prime Minister's exhortation 'Sabka Saath, Sabka Vikaas', and lastly, ours shall be a caring society," Sitharaman said during the presentation of the Budget.
