As Finance Minister Nirmala Sitharaman prepares to present the Union Budget 2024-25, Indian startups are hoping for significant reforms to boost their sector. Entrepreneurs and industry experts are calling for a major overhaul of the taxation regime, addressing issues like angel tax, corporate tax, and Section 68 of the Income Tax Act. They seek tax incentives and credits for R&D, along with measures to facilitate the redomiciling of startups to India.
The startup ecosystem is also pushing for a reduction in corporate tax rates to attract more foreign direct investment (FDI), especially in emerging sectors like climate tech and green energy. Industry stakeholders are advocating for reduced customs duties on solar energy imports and revised GST rates on renewable energy to draw international investors.
Invest In Infrastructure
Improving consumer spending is another key focus, with startups urging the government to invest in infrastructure and logistics. Enhancing last-mile connectivity could lower business costs and enable startups to offer better prices to consumers, potentially boosting spending in rural areas and driving job creation.
Deeptech startups, particularly in AI, are looking for expanded production-linked incentives (PLIs) and tax breaks for manufacturing and R&D. They want reduced GST rates on EV batteries and lower import duties on GPUs and related hardware. Additionally, there is a call for more AI-focused incubators and clearer regulations to support early-stage AI startups.
As Sitharaman delivers the Budget, startups will be watching closely to see how their demands for support and incentives are addressed.
According to Yagnesh Sanghrajka, Founder and CFO at 100X.VC, these are long-standing and very important demands of the industry especially Startups / Unlisted companies.
1. Parity in taxation of cap gains from listed and unlisted shares
2. Discontinuance of Taxing ESOPs on exercise. Tax should be levied on the Sale of Shares issued in ESOP.
3. Relaxation in regulations for outbound investment by AIFs upto a threshold of USD 200,000 per year
4. Tax Incentives/deductions for angel investors for investment in startups in the year of investment, this will see a boost in early stage funding
5. Reduced or higher threshold GST rates for startups to help nurture them and save them the burden of GST so early in their journey.
India stands at a pivotal moment, where transforming its youth dividend into actionable growth is crucial. According to Rahul Gupta, Founder & Managing Partner at ValuAble, “We are at a crucial juncture where we need to turn this dividend into constructive nation-building. Otherwise, we risk the boom fading out.”
He emphasises the importance of nurturing a diverse capital ecosystem to support this transition, noting that both Venture Capital and Venture Debt play vital roles. “Venture Debt is crucial in today’s market as it provides businesses with the necessary liquidity to navigate challenges and seize growth opportunities,” Gupta asserts.
He predicts that venture debt investments in India could surge to USD 10-12 billion by 2030, driven by the evolving demand for alternative financing and a maturing startup ecosystem.
Boost For Emerging Sectors
Gupta also highlights the need to invest strategically in emerging sectors like Cleantech, Healthtech, Edtech, and Emobility. “We should work towards securing around $1.5 trillion in climate finance by 2030 to achieve India’s climate mitigation goals,” he states.
With HealthTech projected to reach $21.3 billion by 2025 and India's EV market expected to grow at a CAGR of 45.5% through 2030, Gupta underscores the importance of becoming a global startup hub. He calls for a significant increase in global capital allocation, aiming to raise India’s share from 4-5% to at least 10% over the next five years. “By fostering innovation and inclusivity, we can create a robust and resilient economy that harnesses the full potential of our capital and paves the way for a prosperous future for all,” Gupta concludes.
Eyes Fixed At Budget
Pradeep Gupta, Executive Director and Head of Investment at Lighthouse Canton, anticipates a finely balanced Union Budget that maintains fiscal prudence while addressing key economic priorities. “We expect the budget to be a balancing act between welfare spending and capital expenditure, without distorting the fiscal discipline demonstrated so far,” Gupta says.
He highlights the importance of the budget in driving consumption and rural recovery, noting that the “Capex multiplier for India is 2.5 times,” emphasising that continued investment in capital expenditure will be crucial for sustained quality of spending.
Gupta also anticipates an expansion of the Production Linked Incentive (PLI) scheme into additional sectors, reflecting the government's focus on broadening manufacturing efforts. This, he believes, is crucial for achieving the USD 1 trillion export target by FY28 and will contribute significantly to job creation. He warns that any move to alter equity taxation could be detrimental, stating, “Any change in equity taxation to ensure standardisation will not be well received and does not bode well for the secular financialisation of savings.”
