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Finance Minister Niramala Sitharaman on 1 February 2020 proposed easing of tax payments for startups with a view to promoting the growth of budding entrepreneurs.
ESOP (employee stock option plan) is a significant component of compensation for these employees, she said while presenting the Union Budget for 2020-21.
Currently, ESOPs are taxable.
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 percent of its profits for three consecutive assessment years out of seven years, if the total turnover does not exceed Rs 25 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 the claim of deduction from the existing 7 years to 10 years," Sitharaman said.
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