The push comes amid 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.
DIPP has 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 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 think tank iSPIRIT.
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.
DIPP is also in the process of finalising guidelines for a credit guarantee fund scheme to increase the availability of finance for startups.
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 government had announced several incentives for startups at the launch of the Startup India Action Plan such as a three-year income tax holiday subject to non-distribution of dividends and capital gains tax exemption for investments in newly formed manufacturing micro, small and medium enterprises by individuals. Only companies registered after April 2016 can apply for the tax benefits. DIPP also announced a tatkal service for startups for filing patents.
Under the faster clearance route, application fees for individuals and startups have been kept at Rs 8,000 while for companies, it could be as much as Rs 60,000.
Source: The Economic Times
Image Courtesy: NC OSBM