Finance Minister Niramala Sitharaman on Saturday proposed easing of tax payments for startups with a view to promote growth of budding entrepreneurs.
"In order to give a boost to startup 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, whichever is earliest," she said while presenting the Union Budget for 2020-21.
ESOP (employee stock option plan) is a significant component of compensation for these employees, she said.
Currently, ESOPs are taxable.
"This leads to cash flow problem for the employees who do not sell their shares immediately and continue to hold the same for long term," the minister said.
She said startups have emerged as an engine of growth for India's economy and over the past year, the government has taken several measures to handhold them and support their growth.
During their formative years, startups generally use ESOPs to attract and retain highly talented employees, she added.
Further, the minister said that an eligible startup having a turnover of up to Rs 25 crore is allowed a deduction of 100 per cent of its profits for three consecutive assessment years out of 7 years, if the total turnover does not exceed Rs 25 crore.
"In order to extend this benefit to larger startups also, I propose to increase the turnover limit from existing Rs 25 crore to 100 crore.
"Moreover considering the fact that in the initial years, a startup 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," Sitharaman said.