Tax ESOPs at the time of sale, Local Circles tells DPIIT
Local Circles, a citizen engagement social networking platform, has appealed to the government that shares granted by startups to their employees be taxed only at the time of sale, rather than when the stock options are exercised.
“Action within the next 100 days can lay a solid foundation for robust growth of startups in India,” Sachin Taparia, founder of Local Circles, said in a letter to Ramesh Abhishek, secretary at the Department for Promotion of Industry and Internal Trade (DPIIT).
Today, employee stock ownership plans (ESOPs) are taxed as part of income when an employee exercises his or her options and converts them to shares. However, given that valuations of startups often decline, the gain an employee sees on paper may not be realised at the time of selling one’s shares to an incoming investor or in the event of the company going public. Hence the call to tax such stocks at the time of sale.
ET had reported earlier this month that DPIIT has begun holding talks with the finance ministry, recommending that ESOPs be taxed only when the actual sale happens.
The Narendra Modi-led government, which is expected to be sworn in for its second term this week, has lauded startups for their ability to create employment and has promised reforms.
Apart from seeking taxation reforms in ESOPs, Local Circles has also suggested that the government dedicate 25% of the corpus in its startup fund to aid social impact ventures.
While investments in startups that work on solving critical social issues such as clean drinking water, air quality, and women and child safety have picked up, a boost by the government could enable much more activity in this space, it said.
Taparia, in his letter to Abhishek, also said the government could look at introducing district or local ecosystems to aid setting up and promoting ease of doing business for non-technology startups, just as it has done for technology startups so far.
He also suggested creation of an online ecosystem “connecting all startups and administrative stakeholders in a district”.
“India needs a lot more product innovation and retail and services-based startups,” Taparia said in his letter. “These startups currently face serious challenges at the local level, related to setting up or doing business, permissions, inspections, licenses and clearances.”
Source: ET Tech