Indian startup employees may soon be spared from paying taxes while converting employee stock option to shares.
The Department for Promotion of Industry and Internal Trade (DPIIT) is in discussion with the finance ministry on a new proposal that will tax shares offered as ESOPs only at the time of sale.
“We have recommended that ESOPs be taxed when the actual sale happens,” a senior government official told Economic Times.
The finance ministry is expected to take up the matter for the next budget. The government, in the past few years, has been trying to establish a simpler tax regime for startups with an aim to create a conducive environment for them.
ESOPs are often a part of compensation for most of the startups in India. The employees are expected to pay tax when they exercise the option of converting ESOPs to shares.
The move comes as a good news for the industry, which has been pushing for the reforms regarding taxes to be levied only when shares are ultimately sold when the company goes for IPO or when employees sell teir stake to an incoming investor.