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

New Delhi: The PHD Chamber of Commerce and Industry has urged the government to expand the scope of Employee Stock Ownership Plan (ESOP) taxation reforms for startups. The PHDCCI statement said that for start-ups, ESOPs are the key to attract and encourage talent. The industry body said these should not be taxed as the recipients do not have ready cash at that time and taxation should be on final sale of shares. On taxing capital gains tax, the industry body called for rationalizing the existing surcharge on long-term capital gains (LTCG) and short-term capital gains (STCG) taxes.

It also asked for consideration of extended tax exemption to sunrise and essential categories. Currently, capital gains from listed shares are taxed at 10 per cent, while capital gains from unlisted shares are taxed at 20 per cent. The industry body said this should be removed to create a level-playing field for both listed and unlisted stocks. ,Also Read: Engineering Dropout’s Deep And Amazing Survival Story Will Melt Your Heart; Anand Mahindra is thrilled with the story,

Startups are required to register with several authorities before claiming tax incentives. PHDCCI suggested that a single-window clearance may be provided for startups to claim exemption/deductions under the Income Tax (IT) Act. Start-ups can get 100 per cent tax exemption for a period of three consecutive years out of 10 years of their incorporation. ,Also Read: WFH But Not WFH! IT companies change strategy to allow employees to work from office,

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

It added that additional incentives may be provided for startups from rural and Tier II and Tier III cities. The industry body also sought reduction in Goods and Services Tax (GST) on certain startups, especially edtech, agritech, drone and electric vehicle startups.

The industry body also expected the government to encourage digitization of companies and 100 per cent Made-in-India software products. Currently, GST is 18 per cent with full input tax credit on all software products produced and sold in India. This rate should be reduced to support indigenous manufacturers of software IP in India.