Ajinkya Malasane

In the budget this year I hope a few things change: - ESOP taxation: employees with more than 3 year holdings should get a capital gain like treatment. Employees take real risk joining a startup. The gains are highly unpredictable and most commonly losses happen (most startups fail). The asymmetric nature of the risk / reward should not be treated like salary for income taxes. This is incredibly important for India to be a startup nation and our vision of 5 Trillion economy. Startups are cash constrained. ESOPs serve two purposes: Startups give employees a pie of the startup equity in case the startup succeeds. Employees take a salary cut and get ESOPs instead. ESOPs also align incentives of employees to make the startup succeed. The employee is an "investor" in the startup stock. This is just like investing in stock in public markets or in unlisted startups. However, the risk is high and most startups fail. So just like investors get the benefit of capital gains / capital loss and a favourable tax treatment -- ESOPs should get this benefit. Why should ESOPs be taxed at the highest tax slab like "salary"? Why are employees not treated like investors? Employees like these who work for startups are a very tiny fraction of India populace, they have no voice in policy making. However, our country has big aspirations. We are a startup nation trying to encourage entrepreneurs and we need to support the startup ecosystem. We need to become a 5 trillion economy and pull our citizens out of poverty. Employees who strike it rich by working for the right startup go on to become angel investors in new startups or become founders. There is a virtuous loop here. By taking out a lot of taxes from these distributed gains (employees own small parts of these startups, most startups are heavily owned by investors), we take out equitable wealth creation. The startup investors are taxed like capital gains! So are the founders! Only employees are taxed as if they are not investors. Ecosystems are built when there are a lot of participants. The employees represent a very small amount of gains (most of the gains go to investors). Also consider the losses which so many employees take when startups fail. We have to grow our tax base secularly. Not put all the tax burden on "Salaried" folks who are 2% of our population. My aspiration for the Indian budget: Let ESOPs be taxed like capital gains. The second order benefits to India will be tremendous. This is our decade and each decision like this helps India.