Time for some Incentives for startups?

Ever since the inception of ‘Start up India’ initiative, the Central Government has been making constant efforts to incentivise the startup ecosystem. This would not only facilitate self employed business enthusiasts to materialize their dream of having their own business but also to generate more employment prospects for the increasing job aspirants. The employment generation prospect of startups cannot be undermined in India today, looking at the alarming unemployment statistics coming out every day.

To further reinforce the economic prospects of the startup ecosystem – the central government is planning to pump in new set of incentives to alleviate financial burden on the startup entities.

During the recently concluded interaction amid the revenue department and the Department for Promotion of Industry and Internal Trade (DPIIT), a discussion on the allocation of new incentives to startup ecosystem in the upcoming budget (slated for July 5, 2019) took place.

Tax levy on the employees in relation to shares sale pursuant to the Employee Stock Option Plans (ESOPs) is one of the prospects discussed at the meeting. Under the current tax norms, tax will be imposed on the ESOPs during the employee exercise of the option – Tax will be computed on the employee earnings accrued under the ESOP by taking into consideration the fair market price and option exercise price.

There is a big noise by the startup fraternity over the imposition of tax on earnings under ESOP is hurting the employees’ retention aspect of the startup fraternity.

Another prospect that is under consideration with the DPIIT is the probability of granting angel tax exemption to Category II alternate investment funds (AIFs) on equal footing with the certain Category I investors. 

With the target to drive the funding into the startup ecosystem – DPIIT is focusing on to pass other benefits to AIFs.

Among others exemption of fund managers based in India from the GST ambit in line with the fund managers based offshore is also under consideration – however, it is widely felt that the aforesaid prospect won’t get the nod of the Central Government soon.

Besides the proposed incentives, the startup ecosystem is seeking the inception of certain measures from the central government as listed beneath:

·       Establishment of startup hubs which will serve as a single point of access to startups to access multiple services related to startups ecosystem;

·       A transparent process to recognize the startups – Grant of access to recognized startups to all facilities and benefits conferred on the startups;

·       Developing a credit system for startups to get access to credit and investments without hiccups;

·       Reduction in the tax slabs for the startup employees will ease the financial burden on the startups by enabling them to reduce costs;

·       Promotion of investments in emerging technologies (Artificial Intelligence, Machine Learning etc.,) developed by the startup ecosystem;

·       Reduction of tax slabs associated with the business/promotion of emerging technologies developed by the startup ecosystem; and

·       Development of alternative financing option like Peer to Peer lending (P2P) to encourage retail investors to take part in lending activities and to pump in funds into micro/small enterprises. 

The approval and enforcement of the proposed incentives will certainly come as a shot in the arm for the startup fraternity to scale up its growth in terms of revenue and employment generation.

**************

Read more at:

//economictimes.indiatimes.com/articleshow/69819759.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst