With Finance Minister Nirmala Sitharaman proposing to ease the tax collection burden on ESOPs for new companies, the ‘so-called’ final aggravation for budding entrepreneurs have been evacuated and it is presently a perfect ecosystem for them in the nation, the CBDT chief has said. CBDT Chairman P C Mody said most of the issues relating to startups were addressed in the last budget and the remaining matter on ESOPs (employee stock option plans) was settled this time. He also added that last irritant for start-ups has also been removed; it’s now a perfect ecosystem for the startups. The Central Board of Direct Taxes frames policy for the Income Tax Department and it functions under the Union Finance Ministry.
Sitharaman within the Budget proposed to ease the burden of tax collection on the representatives by conceding the assess installment on ESOPs by five years or till they take off the company or when they sell their offers, whichever is earliest. During the earlier years, the start-ups use ESOP to attract and retain highly talented employees. ESOP may be a noteworthy component of compensation for these employees.
Right now, ESOPs are assessable as perquisites at the time of work out. This leads to cashflow issues for the representatives who do not sell the offers quickly and proceed to hold them for the long term. Explaining, Mody said, “So an employee now can choose to defer his payment of tax on ESOPs, say up to 5 years provided they continue with the company.” If that employee would quit from the company or sells those shares earlier, then it would be taxable at the time of sale but a facility has been given, he added.
Credits: Money Control