Finance Minister Nirmala Sitharaman announced a number of significant measures for start-ups as she presented the Union Budget in the Parliament on Saturday. The Minister eased the tax burden on the employees by deferring the tax payment by five years, or when they leave the company or sell their shares. Among other highlights of her announcement was allowing a deduction of 100 per cent profits for startups with a turnover of Rs 25 crore for three years and for larger-startups with a bigger turnover to 10 years.
“Start-ups have emerged as an engine of growth for our economy. Over the past year, our government has taken several measures, to handhold them and support their growth,” Sitharaman introduced start-ups.
She continued, “During their formative years, start-ups generally used employee stock option plans, ESOPs, to attract and retain highly talented employees. ESOP is a significant component of compensation for these employees. Currently, ESOPs are taxable at the time of exercise; this leads to cash flow problems for the employees who do not sell the share immediately and continue to hold them the same for long-term.”
“In order to give a boost to the start-up 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 their share, whichever is earlier,” The Minister announced.
She added, “Further, an eligible start-up having turnover of upto Rs 25 crore is allowed a deduction of 100 per cent of its profits for three consecutive 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 the initial years a start-up may not have adequate profit to avail this deduction, I propose to extend the period of eligibility for claim of deduction from the existing seven years to 10 years,” Nirmala Sitharaman concluded.
#BudgetWithArnab | Start-ups have emerged as engine of growth. Propose to increase turnover limit for startups from Rs 25 crores to 100 crores: FM @nsitharaman https://t.co/jghcajZuXf pic.twitter.com/B7Je0ImTgC— Republic (@republic) February 1, 2020