Hailing startups as the engine of growth, Finance Minister Nirmala Sitharaman in her second and the longest budget speech has announced multiple proposals to promote startups and digital economy in India.
To support the ideation and development of startups, Sitharaman has proposed a seed fund for early-stage startups. She has also deferred tax payment on employee stock ownership plans or ESOPs.
“In order to give a boost to the startup ecosystem, I propose to defer tax payment on ESOPs by five years or till they (employees) leave the company or when they sell their shares, whichever is earliest,” said Sitharaman.
During the formative years, startups use ESOPs to attract and retain employees. It is usually a significant component of compensation for employees with the hope that it will pay off big eventually.
Currently, ESOPs are taxable at the time of exercising the options and when converting the ESOPs to shares, which has often been criticised by employees. The deferring of tax on ESOPs is certainly a good move. It would invigorate the faith of the employees who drive the future of a company through consistent effort.
Further, eligible startups with a turnover of Rs 100 crore can now claim a deduction on profit. Previously this limit was Rs 25 crore for three consecutive assessment years out of seven years.
The FM has also extended the period of the claim of deduction from seven years to 10 years.
In her budget speech, Sitharaman also mentioned that currently, small firms with Rs 1 crore turnover require to get their financials audited by a Chartered Accountant. To reduce the burden on small retailers and MSMEs, the government has increased the turnover threshold to Rs 5 crore.
She also emphasised on the increasing role of innovations that disrupt established business models – AI, IoT, 3D printing, Drones, Quantum computing, among others. It is now a cliche, data is the new oil. It is true that analytics, fintech and IoT are changing the way we deal with our lives, she added.
The FM also mentioned about bringing out a policy to enable the private sector to build data centre parks throughout the country soon.
“It will enable our firms to skillfully incorporate data in every step of their value chains,” added Sitharaman.
Talking about the importance of Intellectual Properties (IP), the government has also decided to promote a digital platform that would facilitate seamless application and capture IPRs.
“We need to expand the base for knowledge-driven enterprises, IP creation will play an important role which will benefit startups. In the institute of excellence, a centre would be established that would work on complexities and innovation in the field of IP,” said the FM.
In recent years, India has witnessed significant growth in patent, industrial design and trademark filings.
It saw over 20% growth in trademark filing, whereas in respect of industrial design filing activity, it witnessed a 13.6% rise in 2018.
India emerged as top tenth nation in the ranking of the total (resident and abroad) IP filing activity by origin.