The Department for Promotion of Industry and Internal Trade (DPIIT) is pushing for ESOP taxation relief that startups have been asking for and which was addressed with a limited scope in Budget 2020.

People in the know of developments have told CNBC-TV18 that DPIIT has held discussions with the Income Tax Department on expanding the scope of relief announced in the Budget to all startups recognised under Startup India.

DPIIT is also engaging with startups and industry bodies on the demand for removal of double taxation on ESOPs and is expected to make a recommendation on that as well.

In her budget speech, Finance Minister Nirmala Sitharaman announced that the taxation on ESOPs for employees would be deferred from the time of exercise to up to five years or till they leave the company or when they sell their shares, whichever is earlier.

But the Finance Bill mentioned that this applies to employees with startups eligible Section 80-IAC, under which startups have to get a certificate from an inter-ministerial board.

This, industry members said, will leave out a large section of the startup economy from the jurisdiction of the new rules. While there are over 28,000 startups recognised by the DPIIT, the number of startups certified by an inter-ministerial board are far fewer at about 200, as per industry members.

Startups were also hoping for a removal of double taxation and wanted ESOPs to be taxed only at the time of sale. This, however, has not changed, with the finance minister only announcing a deferment of the taxation from the time of exercise.

DPIIT secretary Guruprasad Mohapatra had told CNBC-TV18 post the Budget that the department will engage with startups and finance ministry on employee stock ownership plan (ESOPs) issue.

"Now, there is an issue (ESOP) raised that could be expanded to cover startups that do not exactly fulfill this particular section of the Income Tax Act requirement. So, this definitely will require a relook at the issue. Definitely we are not averse to re-looking at the issue and we will be discussing this," he said on February 3.

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First Published:Feb 7, 2020 6:55 PM IST