Pre-Budget expectations: PHDCCI expects ESOP taxation reforms for startup

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New Delhi: The PHD Chamber of Commerce and Industry has requested the government to extend the scope of employee stock ownership plan (ESOP) taxation reforms to startups. The statement from PHDCCI said for start-ups, ESOPs are the key to attracting and incentivising talent. These should not be taxed as recipients do not have ready cash in their hands at that point and the taxation should be on the final sale of shares, the industry body said. On taxing capital gains tax, the industry body said about rationalising the existing surcharges on long-term capital gains (LTCG) and short-term capital gains (STCG) taxes.

It also said to consider extended tax exemptions for sunrise and essential categories. Currently, capital gains from listed stocks are taxed at 10 percent, while capital gains from unlisted shares are taxed at 20 percent. This should be removed to create a level-playing field for both listed and unlisted stocks, the industry body said. ()

Start-ups are required to register with multiple authorities before they can claim tax incentives. PHDCCI recommended that a single-window clearance for startups may be provided to claim exemption/deduction under the Income Tax (I-T) Act. Start-ups can get a 100 percent tax break for a period of three consecutive years of its 10 years of incorporation. ()

It is common knowledge that in the first 10 years, startups do not earn any profit. Therefore, this eligibility should be extended to 15 years and for a block of five years instead of three years, according to the industry body. The industry body also expected incentives for employee training and development skills to ensure a well-equipped workforce to meet the growing tech skill demand.

It stated that additional incentives for rural and Tier II and Tier III towns startups can be provided. The industry body also demanded the reduction of goods and services tax (GST) on certain startups, particularly for edtech, agritech, drones, and electric vehicle startups.

The industry body also expected the government to encourage the digitisation of companies and 100 percent Made-in-India software products. Currently, the GST with the full input tax credit is 18 percent for all software products produced and sold in India. This rate must be tapered down to support indigenous creators of software IP in India.