As Union Budget 2024-25 was unveiled, there was palpable anticipation within the startup ecosystem and private capital circles. Stakeholders had eagerly awaited measures to address tax disparities and stimulate investment in emerging sectors.
The Finance Minister’s announcements exceeded expectations by delivering significant reforms, including the elimination of Angel Tax and parity between listed and unlisted sectors. This historic shift is poised to alleviate long-standing barriers and energise the startup landscape, addressing critical issues that have hindered domestic capital flows and investor confidence.
Gopal Srinivasan, Chairman and MD, TVS Capital Funds and Former Chairman, IVCA comments, “The Finance Minister has brought cheer to the entire startup ecosystem by announcing an end to the tax disparity between listed and unlisted sectors in the FY 25 Budget. This historical and epoch-making move, though risking short-term dips in public markets, marks a red-letter day for the long-term growth of the private capital industry.”
Sharing his take on changes in LTCG and STCG he says, “The industry has been seeking this parity for over a decade. Scarce domestic capital, largely from private individuals and families, faced friction due to higher Long Term Capital Gains Tax (LTCG) for Fund managers and startups in attracting this capital. Currently, the domestic Alternative Investment Fund (AIF) pool, at Rs. 2.5 Trillion, is just one-tenth of the Indian equity mutual fund pool.”
"Bringing about parity allows investors to make decisions solely on investment merits, rather than being swayed by a ‘tax sop’ for trading in listed company shares. Private Capital in AIFs (VC/PE) fosters startups and entrepreneurship, creating a multiplier effect through capital formation, talent creation, innovation, and employment generation, unlike secondary trading in the listed space," he adds.
Congratulating and applauding the Finance Minister's bold move, he stresses that equally important was the abolition of the Angel Tax in a single line. Introduced in 2012, this tax caused enormous stress amongst early-stage startup investors and founders. It sent a message that the government "frowned" upon Startups, despite an administration that was gung-ho about promoting them. Dismantling the entire law on entry valuation is a bold move.
He concludes, “As a homegrown private fund manager closely aligned with domestic capital investments and the larger mission of promoting entrepreneurship in India, this is indeed the Dream Budget for startup growth capital. It is Deepavali for the Indian Startup system and the Domestic VC/PE Capital community.”
The budget’s sweeping reforms have been met with enthusiastic approval from industry leaders, marking a transformative moment for the startup and private capital sectors. By addressing long-standing tax imbalances and abolishing the Angel Tax, the Finance Minister has catalysed a new era of growth and innovation.
This ‘Dream Budget’ is set to invigorate the entrepreneurial spirit, foster domestic investment, and significantly bolster the startup ecosystem, aligning with the broader goal of nurturing India’s emerging business landscape. For many, it’s a celebratory milestone reminiscent of a festival of progress for the Indian startup community.
