The government is expected to provide tax incentives to start-ups in the forthcoming budget to support the growth of budding entrepreneurs, sources said.
The Department for Promotion of Industry and Internal Trade (DPIIT) has suggested several measures to the finance ministry for start-ups in the budget.
The recommendations include extension of tax incentives to incubators supported under Atal Innovation Mission; reduction in GST (Goods and Services Tax) rates on AIF (alternate investment fund) management fees; and tax benefits on ESOPs, they said.
Start-ups need talented workforce and ESOPs are one of the best options to attract skilled people as giving just high cash payout add to the burden on cash-starved enterprises, industry players said.
Tiger Global-backed tea cafe chain Chaayos founder Nitin Saluja said that there should be less tax on ESOPs.
"It should attract as little tax as possible. ESOPs are one of the best options for startups at their early stages," Saluja said.
Further fees charged by fund manager of AIF domiciled in India is liable to 18 per cent GST as it qualifies as a taxable supply.
Sources said that reduction in GST rates will help India to become an investment hub.
Startup India initiative of the government aims at fostering entrepreneurship and promoting innovation by creating an ecosystem that is conducive to growth of budding entrepreneurs.
There are 19 components under the Startup India action plan spanning across areas such as simplification and hand holding, funding support and incentives, and industry-academia partnership and incubation.
So far the department has recognised 26,619 startups. Of these, maximum were in the IT services space which was followed by healthcare and lifesciences, and education.
Finance Minister Nirmala Sitharaman is likely to present the Budget for 2020-21 fiscal on February 1, 2020.