The Union Finance Minister Nirmala Sitharaman during her budget speech mentioned that the entrepreneurship has always remained the strength of the country and has announced a series of measures to ensure the ease of doing business specially for Start-ups which faces an uphill task till it gets established firmly in the markets.
An array of measures for Start-ups included seed fund to support for early stage start-ups, advisory cell and investment clearance and others.
FM said, that the Start-ups have emerged as engines of growth for our economy. Over the past year, our Government has taken several measures to hand-hold them and support their growth. During their formative years, Start-ups generally use Employee Stock Option Plan (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 cash-flow problem for the employees who do not sell the shares immediately and continue to hold the same for the longterm.
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.
Further, an eligible Start-up having turnover up to 25 crores is allowed deduction of 100% of its the profits for three consecutive assessment years out of seven years if the total turnover does not exceed 25 crore rupees. In order to extend this benefit to larger start-ups, I propose to increase the turnover limit from existing Rs 25 crore to Rs 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.
Our Government brought in the GST as a historic reform of the indirect taxes in 2017. We also took a path-breaking step of simplifying and rationalizing corporate tax in September, 2019. More importantly, we offered a rate of corporate tax, which perhaps is the lowest in the world. Continuing on this path, we have now put the personal income tax at its lowest ever rate and totally removed DDT at the company's hands. Further, the direct taxes are now the lowest, simplest, and smoothest. Direct tax on the Start-ups also has seen many reformatory steps in quick succession. Even ease of compliance is seeing unprecedented changes. Last but not the least, personal interface with tax administration is at the minimum ever.
It is also proposed to direct all infrastructure agencies of the government to involve youth-power in start-ups. They will help in rolling out value added services in quality public infrastructure for citizens. The government proposes to provide early life funding, including a seed fund to support ideation and development of early stage Start-ups.