In the Union Budget 2022-23, Finance Minister Nirmala Sitharaman has announced to cap the surcharge on long term capital gains from shares of unlisted firms at 15 percent. This is believed to give a fillip to the employees’ stock options (ESOPs) issued by desi start-ups.
For start-ups, it is vital to beckon and retain the best talent, and ESOPs play a key role in helping them keep their attrition rate lower. Their popularity is so high that ESOPs are used as a hiring strategy by start-ups to woo talent. Experts believe that this move will be more beneficial for individual investors and employees in start-ups who hold shares of a company.
“The long-term capital gains on listed equity shares, units etc. are liable to maximum surcharge of 15 per cent, while the other long term capital gains are subjected to a graded surcharge which goes up to 37 per cent. I propose to cap the surcharge on long term capital gains arising on transfer of any type of assets at 15 per cent” said Nirmala Sitharaman said in her speech on Tuesday.
The slab of 25-37% surcharge was introduced a few years ago. This change of capping the surcharge in the Budget will help start-up founders, employees and domestic VCs selling unlisted shares, setting off a cycle of investments in the start-up ecosystem.
For ESOP holders, this is a step towards bringing parity between listed and unlisted securities.
Aside from this, start-ups were given another sop of one extra year of tax incentive as the current period of three years of tax incentive is coming to an end on March 31, 2022.
“Eligible start-ups established before March 31, 2022 had been provided a tax incentive for three consecutive years out of ten years from incorporation. In view of the Covid pandemic, I propose to extend the period of incorporation of the eligible start-up by one more year,” FM said in her speech on Tuesday.