Despite the extension of tax holidays to start-ups by one more year till March 2023 as announced by the Union Finance Minister, Nirmala Sitharaman, nearly 99 per cent of the start-ups may not be eligible to avail the benefits, industry experts told the Business Today.
The same holds true for Employee Stock option plan tax benefits which will be availed by only a small percentage of start-ups which have received the certification from inter ministerial board (IMB) under the Department for Promotion of Industry and Internal Trade. In India out of 61,400 government registered start-ups only 400 have IMB certifications and are eligible for tax concessions. The start-up community has been echoing the demand of overhauling the tax reforms , especially doing away with the IMB certification in order to become eligible for the tax concessions. NASSCOM Public Policy head, Ashish Aggarwal earlier said that the industry body had in its submission before the government taken up the concern of IMB certification requirement . “In 2020 Budget the government had announced the ESOP tax benefits to startups. But today 99% startups aren’t eligible to avail these requiring IMB certification,” Aggarwal stated.
The ESOP tax benefits entailed the deferment of taxes on ESOPs by a period of five years, or till the sale of shares or when the employees leave the company. This was announced by the finance minister in 2020. In 2021 , the government further announced various other tax incentives especially because of COVID onslaught till March 2022. This has been extended by one more year till March 2023 , but will again be availed by IMB certified start-ups. “The government has extended start-up tax holiday and concessional tax for manufacturing startups by a year. While that was on the cards, it doesn’t address the core need of startups to be given a longer tax holiday of 5 years as required. There hasn’t been any announcement to cover all startups registered with DPIIT for the tax holiday either, and that was a much- needed measure for companies hit by the pandemic. FDI in the sustainability sector is also announced to be facilitated, and we look forward to follow up action on that account,” said Ankit Kedia, Founder and Lead Investor, Capital A, a venture fund. The other demand from the ecosystem pertained to differential tax rates on domestic and foreign investors for long term capital gains. The start-ups have been demanding a harmonisation of tax rate which doesn’t put domestic investors at disadvantage. This also seems to be a miss in the Budget.
However an announcement of capping the LTCG at 15 per cent has been viewed as a welcome move which will boost the investments / ESOP’s allotments by start-ups. EV and agri-tech start-ups have a lot to look forward to with various key schemes/ policies announced during Budget 2022. “For automobile companies, the battery swapping policy for the electric vehicle once they are used for public transportation. This will indeed increase the adaption of an electric vehicle for the transportation industry. Finally, this is consistent with the prior announcement of vehicle scrappage and now on EV and focus on developing a 25,000 km of road infrastructure in the fiscal yr 2022-23 that will ultimately contribute to the higher adoption of automobiles in the country,” said Sandeep Aggarwal, Chairman & CEO, Droom.