NASSCOM’s Pre-Budget Memorandum 2023-24

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NASSCOM’s Pre-Budget Memorandum 2023-24

Tejasvi

@tejasvi

December 6, 2022

Public Policy

1774

Based on feedback from the Industry, we have submitted a detailed memorandum of suggestions for the Union Budget 2023-24 to Ministry of Finance (MoF). Our key recommendations submitted to the MoF focus on fostering start-up ecosystem and incentivising talent:

S.No.	Topic	Recommendation
1.	Make the deferment of the time of payment of tax on Employee Stock Option Plan (ESOP) available to the employees of more start-ups	The facility of deferment should be made available more start-ups (not limited to the 635 start-ups with an IMB Certificate). It should be available subject to appropriate conditions but should not require each start-up to seek permission for this. We suggest the following criteria: Available only to employees of DPIIT registered start-ups, and Eligible ESOPs to be offered only to Indian resident taxpayer and The terms of the ESOP should be same for the all the employees to whom these are offered. Alternatively, in case it is not feasible to provide the above framework at this stage, a process may be designed to have fast track/ deemed IMB certification process (say, for start-ups funded by regulated/ accredited investors like AIFs, government managed/ owned funds, QIBs, Foreign Portfolio Investors, Sovereign Wealth Funds, Multilateral Agencies etc.). Other start-ups may be evaluated by a committee for a fast-track IMB certification.
2.	Harmonise tax rate for resident investors on unlisted shares issued by start-ups	Levy tax on long term capital gain earned by resident investors on sale of shares of DPIIT recognised start-ups at par with non-resident investors i.e., at 10%. Alternatively, in case it is not feasible to provide the above framework at this stage, it is suggested to align the long-term capital gain tax rate on par with that applicable for non-resident investors for certain types of domestic investors (like AIFs, government managed/ owned funds, QIBs, Portfolio Investors etc.) to invest in start-ups from the rate of 20% to 10%.
3.	Rationalise scope of S.68 of IT Act	Withdraw amendment to S.68 introduced vide Finance Act 2022 which requires start-ups to explain the source of income of the investor investing in start-ups as this disincentivises friends/ family to lend money to the start-ups.
4.	Reduce the rate of Minimum Alternate Tax (MAT) for eligible start-ups	Reduce the MAT for eligible start-ups under S.80IAC of IT Act from 15% to 9%.
5.	Extend the sunset clause for incorporation as provided in the definition of “Eligible Start-up” under S.80-IAC and S.54GB	Review clause (a) of the definition of “eligible start-up” as provided in S. 80-IAC and extend the period of incorporation for another 5 years, i.e., start-ups incorporated till April 1, 2028. Also, review the date of transfer of residential property made by eligible start-up and extend the sunset clause.
6.	Harmonise the period under S.79 in which loss was incurred with the definition of start-up provided in DPIIT Notification No. G.S.R. 127(E) dated 19th February 2019	Amend S. 79 to allow an eligible start-up to carry forward and set off losses, if such losses have been incurred during 10 years beginning from the year in which the start-up is incorporated.
7.	Rationalise emoluments threshold for claiming deduction under S.80JJAA	S.80JJAA provides an additional deduction of 30% for 3 years for employing additional employees with monthly emoluments less than INR 25,000. The limit of monthly emoluments (i.e., INR 25,000) was introduced vide Finance Act, 2016. Considering inflation and a nominal rise in remuneration, increase the eligibility threshold to cover employees with monthly emoluments of up to INR 50,000 per month (from INR 25,000).

Other suggestions on ease of doing business cover transfer pricing dispute resolution, rationalisation of mark-up rates; standardising process of summons, rationalising penalties; prescribing timelines for - disposal of appeals, various proceedings, refund; increase technology adoption for better taxpayer services.

Our Pre-Budget Memorandum 2023-24 is attached for your reference. In case of any query, please write to tejasvi@nasscom.in

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