Startups to get a boost in the upcoming budget, here’s how

With Industry department drawing up a list of tax concessions on employee stock options, unlisted securities and convertible instruments, Prime Minister Narendra Modi's key Startup India programme may get a boost in the upcoming budget.

The idea comes because of the concerns that the startup movement in India was losing steam and there hasn't been a significant improvement in ease of doing business. The Department of Industrial Policy and Promotion (DIPP) has proposed that ESOPs for startups be taxed at the time of sale, when they have greater liquidity to pay taxes and the instruments get a fair valuation.

Reportedly, DIPP also said that the period of long-term capital gains for unlisted securities be reduced from the current limit of 24 months, keeping in mind that investing in startups is risky and subject to a higher rate of tax.

"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 told ET.

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," Sharad Sharma, cofounder of think tank iSPIRIT, told ET.

The long-pending demand of increasing the tax holiday period for startups to seven years from three years has also been forwarded to the finance ministry by DIPP.

The tax holiday was announced to help startups meet cash constraints and limited avenues of finances available in their early days.

The Startup Action Plan announced by Prime Minister Modi in January 2016 said a credit guarantee mechanism through 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.

The union budget is expected to be announced on February 1.