Good news for startup employees - your ESOPs won’t be taxed for five years

• Nirmala Sitharaman said that “the youth are no longer job seekers but are job creators.”
  
• She expanded the tax relief given to startups. Earlier, a startup with turnover up to ₹25 crores was allowed 100% tax deduction on profits for seven years. She expanded it on two counts that can include older startups and those which are larger too.
  
• Sitharaman provided tax relief to employee stock options (ESOPs) given to startup employees.
  

The Finance Minister Nirmala Sitharaman moved to support the youth of today who have transformed from “job seekers to job creators” as they turn entrepreneurs.

She expanded the tax relief given to startups. Earlier, a startup with turnover up to ₹25 crores was allowed 100% tax deduction on profits for seven years. She expanded it on two counts that can include older startups and those which are larger too.

“I propose to increase the turnover limit from existing ` 25 crore to ` 100 crores. Moreover, considering the fact that in 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 7 years to 10 years,” she said.

Experts that the industry has been waiting for bated breath for this relief. “This will allow start-ups to take more risks, innovate on a larger scale and contribute to the economy in a much more significant manner,” said Geetika Dayal, executive director of TiE, a global community of entrepreneurs.

Sitharaman provided tax relief to employee stock options (ESOPs) given to startup employees. “Currently, ESOPs are taxable as perquisites at the time of exercise. This leads to cash-flow problems for the employees who do not sell the shares immediately and continue to hold the same for the 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 shares, whichever is earliest,” she said.

That would make it easier for startups to attract and retain good employees as most of them are unable to pay high market rates that professionals command.

She also proposed a seed funding that will support early-age startups and investment cells for entrepreneurs to ensure economic growth. “Start-ups have emerged as engines of growth for our economy,” she said.

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