1. ESOP Tax payment deferment
Vide Insertion of a new section: 156(2), Employees of IMB (Inter-Ministerial Board) certified startups can now defer tax payment on ESOPs by:
> 5 years or
> till they leave the company or
> when they sell their shares, whichever is earliest.
(applicable from 1/4/20)
(Requirement to deduct TDS also deferred accordingly)
Currently, ESOPs are taxable as perquisites at the time of exercise leading to a cash flow crunch for the employees who do not sell the shares immediately, resulting into a tax on unrealized profit.
The catch: There are less than 500 startups that are IMB certified, while the total DPIIT (Department for Promotion of Industry and Internal Trade) recognized startups are 28,087 (as reported by the Economic Times). Which essentially means that only 2% of startups will be able to avail the benefits of this amendment.
Press Conference in Bengaluru
Finance Minister, Nirmala Sitharaman has been conducting conferences throughout the country to get feedback on the budget from industry experts. At the conference in Bengaluru, Sitharaman mentioned that the startups had been asked to make a representation to the IMB in relation to their grievances surrounding the above amendment.
Economic Times reported
A proposal by DPIIT to extend the above amendment to all DPIIT recognized startups got turned down by the Central Board of Direct Taxes (CBDT). Instead, CBDT is mulling changes in the IMB framework (probably by making it more liberal). Concrete updates can be expected by the end of Feb’20.
Turnover and Time threshold relaxed
Vide amendment of section 80-IAC, Definition of startups has been widened by increasing the turnover threshold from 25 crore to 100 crore. Moreover, the period of eligibility for claiming exemption also increased from 7 years to 10 years.
Digital Platform for IPRs
To facilitate seamless application and capture of Intellectual Property Rights (IPRs) (e.g. Patents).
The Government will provide early life funding, including a seed fund to support the ideation and development of early-stage Startups.
Involve Start-ups in Infrastructure development
All infrastructure agencies of the government will be directed to involve youth-power in start-ups with an expectation of help in rolling out value-added services in quality public infrastructure for citizens.
Vide insertion of a new section: 194-O, TDS at 1% is now required to be deducted by an e-commerce operator on the gross amount of goods or services sold through the operator.
If the e-commerce participant is an individual or HUF, no TDS to be deducted up to ₹5 Lakh of gross sales. (Applicable from 1/4/20)
This article is a part of the February'20 edition of our Startup Newsletter. Here's the complete publication: