ESOPs Have Been Rising Post Budget

As the Budget 2020 just concluded, startups have been pretty active, as they have been doing the math. What unfolds, is pretty interesting!

Several Indian startups have started to tweak their compensation package, in order to include more employee stock options. This was to include employee stock options after the Budget had proposed a deferment of tax on the stock component for companies that are incorporated after April 1st, 2016.

In the Union Budget, Finance Minister Nirmala Sitharaman had said that employees at young startups would be getting the option to defer the payment of tax on ESOPs. This would be instead of paying the tax, during the time of tax allotment. Employees can now pay taxes when they exit the company. Might be at the time of selling the shares, or five years after allotment, whichever is applicable.

Startups like The Man Company, Deal Share, CallHippo, FlexiSpaces, and AdvisoryMandi are looking forward to availing this option. 

Startup founders have stated that the budget proposal to defer the timing of payment of taxes on ESOPs that would be provided by eligible startups. They felt that these would make ESOPs much more attractive to startups. Startups that are eligible can now look at ESOPs like a compensation component in their initial years, when they face a liquidity crunch. 

Other bootstrapped startups feel that they would benefit from this. Also, many startups have seen this as an opportunity to convince top and critical talent from brick and mortar companies, in order to come aboard and benefit from growth opportunities that are only offered by startups.

Several fintech startups have said that they have welcomed the announcement, which would help in attracting, retaining talent, and also create more engaged employees. 

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