Budget 2020: Startups hail tax changes, say will help attract, retain talent

Union Budget 2020 recommends a five-year tax holiday on Esops, a 10-year tax exemption for startups with under-Rs 100 crore turnover.

The Budget proposal for the startup ecosystem, especially the one on tax on employees stock options (Esops), received a big thumbs up from the fledgeling sector.

The Budget recommends a five-year tax holiday on Esops, a 10-year tax exemption for startups with under-Rs 100 crore turnover and also talks of a seed fund to push new businesses.

India is the third-largest startup ecosystem in the world and the government has been focussed on pushing innovative startups through policy interventions for some years now.

"The Finance Minister has delivered a fantastic Budget for startups. The measures announced on Esops, taxation, and seed fund will infuse tremendous energy into the ecosystem," said Saurabh Srivastava, Indian Angel Network Chairman.

He said the commitment to having no harassment will also boost the confidence of entrepreneurs.

Restructuring the taxation on Esops is a great breather along with the definition of turnover for scaled startups doing good work, said Anand Kumar Bajaj, CEO of Paynearby.

"The ESOPs always has been a very strong mechanism for startups to incentivise, attract, and retain high performing talent. The government proposal would allow startups to leverage ESOPs more effectively," said Pawan Gupta, CEO of trading platform Connect2India.

Anuj Golecha, Co-founder for the platform Venture Catalysts said the ecosystem has reasons to be satisfied with the Budget announcements.

"A dedicated investment clearance cell for providing end-to-end facilitation and support including pre-investment advisory, information on land banks, and quicker clearance of funds at the state-level will boost the entrepreneurship culture," he said.

At present, the paperwork and the channels to engage with both pre and post investments are huge and the one-stop clearance would allow entrepreneurs more time to focus on their business, the Connect2India CEO observed.

Harsh Jain, Co-founder of Groww, said the move on the Esops will encourage more startups to get incorporated, and make it easier for them to attract and retain good talent.

The Budget also proposes to provide early-life funding, including a seed fund to support ideation and development of early-stage startups.

"The proposed seed funding support for 'ideation and development' of early-stage startups would encourage more people to take the entrepreneurship plunge as well as support the existing startups," Gupta said.

Terming the startups as "engines of growth", Finance Minister Nirmala Sitharaman said the present Esop taxation leads to cash-flow problem for the employees who do not sell shares immediately and continue to hold the same for the long-term.

"To give a boost to the 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 their shares, whichever is earliest," she said.

(Edited by Saheli Sen Gupta)