Finance Minister Nirmala Sitharaman will present the Union Budget in the Parliament on Tuesday, July 23. This will be the first Budget of the Modi 3.0 government after it won the Lok Sabha election this year.
With the presentation of this year’s budget, Sitharaman will become the first Finance Minister in the country to present seven consecutive budgets.
However, it is going to be a tough balancing act for Sitharaman as expectations from the startup ecosystem are running high ahead of Union Budget 2024.
During the 2024 Interim Budget, the finance minister highlighted some major announcements for the startup ecosystem. One of them was the extension of the tax holiday for startups until March 31, 2025.
Now, a key ask from the venture capital (VC) and private equity (PE) ecosystem is the removal of ‘Angel Tax’ to ease the pressure on early-stage startups and investors.
Apart from this, startups are also looking forward to the launch of new schemes to boost domestic investments. Some experts want the upcoming budget to address other issues like corporate tax, Section 68 of the Income Tax Act, Employee Stock Ownership Plans (ESOPs), and redomicile taxation regimes.
Let’s take a look at some other key demands from entrepreneurs, startups, and investors from the budget.
Budget wishlist from VC and PE ecosystem
Simplifying taxation, relaxing the norms around identifying what constitutes a startup, and unlocking domestic capital for startups top the list of asks from the venture capital (VC) and private equity (PE) ecosystem in India from the upcoming union budget.
Removing bank guarantee for early-stage startups will also aid in ease of borrowing capital for growth, said Padmaja Ruparel, Co-founder of Indian Angel Network (IAN).
Another longstanding ask from the ecosystem has been the parity of Long-Term Capital Gains and Short-Term Capital Gains taxes for listed securities and startups. This will also aid talent retention at startups by doing away with dual taxation of stocks granted under ESOPS, said Ruparel.
Industry body Indian Venture and Alternative Capital Association (IVCA) has requested the government to issue a circular to classify investments by AIFs as “capital assets” income, which do not attract GST.
Earlier this month, the DPIIT (Department for Promotion of Industry and Internal Trade), under the Ministry of Commerce, proposed the removal of ‘Angel Tax’ in a submission made to the finance minister to ease the pressure on early-stage startups and investors.
Further, a key demand has been to expand the list of countries from which investment from non-residents in Indian startups be exempt from angel tax as part of the Finance Bill 2023. As of May 24, 2023, only 21 countries were part of the list.
Tech industry seeks simplification of tax regime
The technology industry hopes the Union Budget would simplify rules on the taxation front to ensure ease of business and give a thrust to advanced technologies such as AI.
The National Association of Software and Service Companies (Nasscom), the body representing India’s technology industry, said, “Improve the tax competitiveness of the transfer pricing regime to boost India’s IT services exports and improve ease of doing business for global capability centres (GCCs).”
Nasscom has also sought a hike in the limit of the safe harbour regime under transfer pricing for technology companies–from the current level of Rs 250 crore to Rs 2,000 crore. Under the safe harbour regime, the tax filings provided by companies are accepted by the authorities and do not come under scrutiny.
Meanwhile, several changes are happening in the technology industry with a strong focus on game-changing technologies such as artificial intelligence (AI) and generative AI (GenAI). The sector hopes the Union Budget will bring measures to encourage further investments in these technology areas.
The industry is also expecting the Budget to provide investment support in digital infrastructure technologies and tax incentives, which could lead to the establishment of advanced centres of excellence to drive innovation in R&D.
EV sector pins hope on purchase subsidies for EVs; lower taxes
The electric vehicle (EV) industry’s biggest expectation from Union Budget 2024 is an advancement on the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, the second iteration of which expired on March 31, 2024.
Import taxes have also been a bone of contention for several EV manufacturers who want to set up shop in India, and the issue came to a head with Tesla eyeing an entry.
Other than import taxes, manufacturers are hoping the government will rationalise goods and services tax (GST) on electronic components, especially battery packs, cells, and other critical components used in EV powertrains. The government, in 2023, had already removed custom duties on capital goods and machinery required to manufacture lithium-ion cells.
Beyond manufacturing and sales subsidies, EV players also reckon it would help if the government actively boosted usage, especially in commercial sectors.
Edtech sector seeks funding, tax exemptions
The edtech sector has seen many ups and downs in recent years. Following the pandemic-led surge, it is now facing a reality check with layoffs and funding challenges.
Edtech companies are hoping for tax exemptions, enhanced digital infrastructure to bridge the access gap, and increased funding to propel the sector’s growth, among others. These measures, they argue, are crucial to democratise education, enhance learning outcomes, and equip the future workforce with necessary skills.
Education sector stakeholders assert that the budget should recognise the importance of aligning with the New Education Policy’s recommendations, including allocating 6% of total GDP to education.
Reducing tax rates on online learning will make it more affordable, enabling equal access to education and further democratising knowledge, he adds.
SaaS sector’s wishlist
In a big push to embrace AI for technology startups in India, the government approved the India AI Mission with a Budget allocation of over Rs 10,000 crore in March this year to fuel growth in various segments, such as IndiaAI Compute Capacity, IndiaAI Innovation Centre (IAIC), IndiaAI Datasets Platform, among others.
However, industry experts suggest that while this initiative is promising, more needs to be done to leverage the new technology across the sector.
Several SaaS startups expect the upcoming Budget to focus on Intellectual property (IP) enforcement, streamlined patent processes, and incentives for R&D investments.
The industry expects streamlined regulations, tax benefits for early-stage companies, and easier access to capital, says Khadim Batti, Co-founder and CEO, Whatfix.
Agritech stakeholders ask for easier credit, digital public solutions
The Union Budget 2024 holds critical importance in addressing challenges related to the agritech sector.
Stakeholders are hoping for solutions to navigate issues related to insufficient credit, lack of digital public infrastructure supporting agriculture, and robust market access systems.
Agritech stakeholders have voiced a need for government support in helping startups get traction, stay afloat, and tap into public infrastructure for digital penetration in the Union Budget.
While founders, investors, and other stakeholders in the sector are looking at tying up current credit schemes with the adoption of agritech practices to generate more demand, they are also looking at the government to introduce tax breaks, financial assistance, and credits to agritech startups for innovation.
Multiple founders have voiced a need for creating agriculture-centric digital public infrastructure and setting up infrastructure that allows farmers to access these digital tools.
Besides creating digital public infrastructure, the sector also feels it is important to set up systems in rural India to access these technologies effectively.
Gaming startups eye policy breather
The online gaming industry in India has seen a rapid expansion mirroring the rise in digital reach across the country, the adoption and rise of the 5G network, and pandemic-induced change in user consumption patterns.
However, game development in India is still nascent amidst tight funding. The government has encouraged game development in India by allowing 100% foreign direct investment (FDI) into the sector and the inclusion of esports as part of multi-sports events.
“Gaming and esports have different needs and demands in the Budget. With esports now under national and international sports federations, esports would benefit from an increased investment in the sports budget and inclusion in national games such as Khelo India,” says Akshat Rathee, Co-founder and MD of NODWIN Gaming.
The industry is also expecting more policies to encourage domestic gaming hardware and game production development.
Last year, the GST Council recommended that online money games be subjected to a GST rate of 28% on the total money deposited with the platform, resulting in a higher tax burden for companies. Previously, a GST rate of 18% was levied on the platform fee.
The change in tax regime resulted from the GST Council differentiating between online games played by skills and those played by luck. However, this has posed several challenges for the companies.
Stakeholders also fear the high tax rate will curb innovation and slow growth for small companies, with investments already slowing down post-pandemic high.
Drone sector’s hope for Budget
Ever since the Minister of Civil Aviation liberalised the drone ecosystem in 2021 and cut red tape, there has been an unprecedented surge in startups, investment inflow, and technological advancements.
Prime Minister Narendra Modi had earlier laid down the vision to make India a drone hub by 2030.
That can only happen through a policy push promoting deep tech companies and enabling the commercialisation of drone technologies, Ankit Mehta, CEO of ideaForge, suggests. “Key measures should include expanding the PLI scheme for drones, establishing a dedicated R&D fund, creating common testing facilities, and scaling up government-led market opportunities,” he adds.
Many analysts also agree that the upcoming Budget needs to include pro-technology policies that promote growth by investing in digital infrastructure, supporting businesses and startups, and encouraging emerging tech sector investment.
Despite its upward trajectory, the drone industry faces complex regulatory challenges, such as those governing beyond visual line of sight (BVLOS) operations, which are still in development. BVLOS refers to the operation of UAVs where the pilot or operator cannot see the drone with their own eyes.
In addition to regulatory and workforce challenges, drone startups have had to navigate various operational challenges, including infrastructure, supply chain, and compliance issues.
Despite the promising outlook, challenges such as a lack of domestic component manufacturing, talent retention issues, and inadequate infrastructure persist.
