With industry department reportedly drawing up a list of tax concessions on employee stock options, unlisted securities and convertible instruments, Prime Minister Narendra Modi’s ambitious “Startup India” Movement may get a boost in the upcoming budget. The latest Union Budget is likely to be announced on February 1st, 2017.
According to ET, the idea of making such changes comes amid concern that the startup programme was running out of in India and there hasn’t been a significant improvement in ease of doing business. The Department of Industrial Policy and Promotion (DIPP), an agency that regulates the Industrial policies, has proposed that ESOPs for startups should be taxed at the time of sale when they have marginally a greater liquidity to pay taxes and the instruments get a fair valuation.
Owing to the fact that investing in startup programme is risky and subject to a higher rate of tax, the period of long-term capital gains for unlisted securities should also be reduced from the present limit of 24 months, said the DIPP.
“We are trying to address various tax and regulatory issues which the startups are facing currently, hoping that the budget will address some of these issues,” a senior government official said, requesting anonymity.
Industry agrees with the need for incentives. “Startups move away from India because of the current tax regime. Some of these changes are simply hygiene factors and not concessions to help startups stay and flourish in India,” said Sharad Sharma, co-founder of the think tank.
Moreover, a formal request stating the long-awaited demand for increasing the tax abatement period for startups from three years to seven years has also been re-addressed to the Ministry of Finance by DIPP. The tax holiday was announced to help startups meet cash constraints and limited avenues of finances available in their early days. The tax subsidy was proclaimed for a startup to help them meet cash constraints and limited avenues of finances accessible in their early days. The nodal agency is also in the process of finalising guidelines for a credit guarantee fund scheme for increasing the availability of finance for startups.
The Startup Action Plan announced in January 2017 by Prime Minister Modi mandated a credit guarantee mechanism via the National Credit Guarantee Trust Company or the Small Industries Development Bank of India (Sidbi) would get funding of Rs 500 crore annually for the next four years. Read Indian Startup News.