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Anticipations of the startup ecosystem for the Budget of 2024.

Writer's picture: RISHI KORDERISHI KORDE



As India cements its status as the world's third-largest startup ecosystem, founders and investors are eagerly anticipating the upcoming interim budget as a crucial link. Many founders are particularly interested in the anticipated tax-related announcements in the 2024 budget, set to be presented by Finance Minister Nirmala Sitharaman on February 1. Given the prolonged period of limited funding, there is widespread anticipation that this budget may introduce incentives to encourage investors to support innovative ideas with a clear path to profitability.

Ankit Agrawal, CEO, and Co-Founder of InsuranceDekho, emphasizes, “While the government is taking steps to promote entrepreneurship in India, we urge the government to allocate more funds, provide access to new technologies, and ease tax regulations.”

Capital Gain Discrepancy

Founders from various sectors rightly highlight the crucial need for simplification and fairness in taxation, aligning unlisted equity with listed equities. Despite the unprecedented growth of India's startup ecosystem, concerns persist regarding the disparity in tax treatment. Startups are hopeful that the interim budget will bring reforms to redefine the holding periods for Long-Term Capital Gains (LTCG) and Short-Term Capital Gains (STCG), potentially enhancing their appeal to investors.

Tax Rationalization

A critical aspect founders hope to see addressed is the taxation framework for Employee Stock Option Plans (ESOPs). The consensus among startup founders is that a favorable ESOP taxation structure is essential for talent retention. The interim budget is eagerly awaited to revamp ESOP taxation, creating an environment conducive to talent acquisition and retention, a key element for sustained business success.

The call for a 'serious relook' into Employee Stock Option Plans (ESOPs) taxation resonates with a growing sentiment among founders. The government's commitment to rationalizing capital gains tax would further increase attractiveness for investors.

Regulatory Measures and AIF Standards

Recent RBI regulations affecting Alternative Investment Funds (AIF) have prompted founders to advocate for enhanced regulatory measures. A circular issued by the RBI a month ago imposes restrictions on regulated entities, limiting their investments in AIFs. While the intention is to address issues like evergreening by a few regulated entities, the current circular impacts all AIFs, including VC, Private Debt, or Venture Debt, with downstream investments in a debtor company of the regulated entity.

Rajat Khurana, SVP - Private Markets, Lighthouse Canton India, emphasizes, “Regular Entities have been important and large contributors for AIFs, especially in the private debt space, and this change will negatively impact the institutional funds raised by these AIFs going forward in a big way.”

Additionally, regulated entities are required to either redeem or provision for 100 per cent of the amount invested in AIFs within 30 days of the circular's issuance. However, since most private market AIFs are closed-ended, redemption isn't feasible, leaving regulated entities with the option to make provisions for existing investments.

Commenting on recent RBI norms, Siba Panda, Founder and Managing Partner, ValuAble, agrees and says, “Despite concerns about recent RBI regulations affecting Alternative Investment Funds (AIF), recognizing the role of stringent standards in strengthening the investment ecosystem becomes imperative.”

Edtech Sector

The appeal is to increase the budget for the education sector and reduce the GST rate from 18 per cent to five per cent on educational products and services.

Prateek Maheshwari, Co-Chair of India Edtech Consortium (IEC) and Co-Founder of Physics Wallah, mentions, “Reducing GST on educational services would also alleviate financial strain on parents, promoting affordability. Focusing on collectively enhancing youth skills to increase employability and reduce skilling gaps is imperative.”

EV Sector

As India's logistics sector prepares for another year of growth, the 2024 budget presents a pivotal opportunity to enhance its potential.

Zaiba Sarang, Co-founder of iThink Logistics, expects the upcoming budget to incentivize green initiatives, such as electric vehicles, green warehousing, and renewable energy adoption, aiming to reduce the carbon footprint and attract sustainable investments.

In conclusion, the startup community anxiously awaits the interim budget, with expectations centered around tax reforms, regulatory clarity, and a supportive environment fostering sustainable growth.



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