Reduced ESOP, Angel Tax, Enhanced PPP Among Startups' Demands From Government

A reduction in tax on employee stock option plans, an angel tax and enhanced public-private partnerships are among the startup industry's top demands from the government, according to a unicorn founder and a top government official.

Speaking to NDTV Profit on the sidelines of the IAMAI India Digital Summit, PhysicsWallah co-founder Prateek Maheshwari, who is also chair of the India Edtech Consortium at the internet lobby association and Rajesh Kumar Singh, Secretary at the Department for Promotion of Industry and Internal Trade, elaborated on the demands being made by the industry and how the government is acting on them.

"We are closely working with DPIIT on how we can make the ESOP framework more employee-friendly. Multiple unicorns have requested for this and the department has been very supportive," Maheshwari said.

The second thing is how public-private partnerships can be improved so startups can contribute technology to governments and solve real problems in India, he said.

The startup ecosystem has been raising the issue of taxation on ESOPs and even angel tax for some time now, and the Ministry of Finance has taken some steps to ease the tax burden on them, Singh said. "On this particular issue of ESOPs, I will pursue it further with the Ministry of Finance. I can't take a call on this as such, but let me also say that there is a broader enabling business environment that the government of India has tried to build up," he said.

The issue of KYC compliance was also raised during the Finance Minister's meeting with fintech firms yesterday, Singh pointed out. "It was an interesting suggestion. I think it should have been done, given the fact that we have mobile providers who do digital KYC for a new phone connection. I think something similar, if not already done by the banks, should be looked at and the RBI was quite positive about it."

The government is also looking at expanding the National Single Window System for startups. Startups could perhaps be integrated into the same window and a smaller special window can be created for them, the secretary said. But the national single window is a work in progress because it is not a fully integrated facilitation window that cuts across government departments and state governments yet, he said.

So far, startups have largely used venture capital from abroad for funding, but there are other avenues opening up locally as well, Singh said. "The government would prefer that they start using other avenues, including the offshore sort of financing framework that we have set up in GIFT City."

Liberalisation is expected in other elements that ensure access to public funds through IPOs and more, Singh said. "I’d say that we’ll probably see some good movement there, hopefully right after the elections.”