Good news for startups, Guv to exempt tax on Esops and VC investments

Good news for startups, Guv to exempt tax on Esops and VC investments

Bengaluru, India | Red Newswire | Dec 25, 2015 Last Updated at 01:20 AM IST.

Startups might not have to pay tax on stock options given to employees or on any investments, as being proposed by the ministry of communications and information technology. This tax exemption move can have a boosting effect on companies.

This proposal is a part of next year’s budget, aimed at promotion of startups in line with PM Modi’s initiative.

An official concerned with the proposal said, “Some "70-80% of startups in the country are tech related and we need to find a way to encourage private capital and long-term investment in Indian tech startups.”

The department of IT further said that the proposal will be applicable to the directors also.

The proposal came in response to high amounts of fund raised by startups and still have to struggle with the regulatory demands. According to present tax laws, 33% short term capital gains tax has to be paid by the angel investors and the long term capital gains tax that has to be paid is 20%.

This is well in contrast with the investments made in stock markets. Here short term tax is 15% and zero long term tax. The angel investment community has been growing in India and has been asking government to ease the startup Esop policy like stock markets.

The ministry also suggested that the startups should have the freedom to wind up and that here should be no tax on capital gains on individuals for startup security investments. The proposal did mention “guidelines on valuations of startups and easy exits and no stigma for failure, like blacklisting etc. for financial institutions.”

PM Modi had already launched “Startup India, Standup India” programme whose main aim is promoting entrepreneurship.

The same official cited above said, “We completely understand that we need to encourage investment and taxes need to go down if capital funding has to flow into the startup ecosystem if we want to recreate a Silicon Valley here.”

According to Nasscom, India is among world’s top 5 startup communities.

Saurabh Srivastava, co-founder of Nasscom and Indian Angel Network says, “It is a very, very positive step, and which could turn out to be transformational for the country's startup ecosystem. We're not asking for extra benefits, all we want is to be aligned with the public markets."

Acceptance of these proposals can give a significant boost to the Indian startup community and will also attract top talent towards startups.

Source: ET Bureau