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Budget 2020: How Indian Startup Founders Reacted On New ESOP Taxation Rules

| Published on February 3, 2020

On 2 Feb’20, Finance Minister Nirmala Sitharaman presented the Union Budget 2020-21 in the Lok Sabha. This year’s Union Budget centers around three ideas; Aspirational India, Economic development, A Caring Society.

But what caught many’s attention is that in the budget introduced, Nirmala Sitharaman proposed deferring the tax payments on ESOPs by five years or till the employees leave the company or sell their shares, whichever is the earliest.

While speaking on the ESOP rules, Sitharaman said,

During their formative years, startups generally use ESOPs to attract and retain highly talented employees. ESOPs are a significant component of the compensation of these employees. Currently, ESOPs are taxable. This leads to a cash flow problem for the employees who do not sell their shares immediately and continue to hold them for the long term.

As per the new rules announced by Finance Minister Nirmala Sitharaman, the stocks would be taxed at the time of their sale, or 5 years after vesting, or when an employee leaves a startup, whichever comes first. This avoided double taxation for startup employees.

Many startup founders were all praises for the new ESOP rules and showed in their recent tweets.

Vijay Shekhar – Paytm Founder

Sanjay Swamy – Managing Partner at Prime Venture Partners

Kunal Bahl – Snapdeal CEO

Sharing her views on the Budget 2020, Biocon MD, Kiran Majumdar Shaw tweeted:

In addition to this, the Finance Minister has also proposed a 100% deduction of profits for three consecutive assessment years out of seven for eligible startups having turnover of up to Rs 25 crore.

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