Athira Sethu
Kochi, 25 January 2025
Startups in India have many expectations from the Union Budget 2025, which is to be announced soon, in order to help them grow and thrive and compete globally. The key areas are discussed below:
- Tax Incentives and Simplified Taxation: Startups expect more tax incentives to ease the financial burden. Such incentives may include extended tax exemptions, lower rates for corporate taxes, or even easier tax compliance procedures. This is aimed at making it easier for startups to be more focused on innovation and growth rather than getting bogged down in complicated tax procedures.
- Support for Reverse Flipping: Many Indian startups are incorporated abroad. This is mainly done to garner better funding and tax benefits. As India emerges as a more attractive market, the government will be expected to offer incentives to these firms to bring them back to India, a trend called “reverse flipping.” Such incentives could include, for instance, capital gains tax exemptions and lower tax rates for companies returning to India.
- Encouraging Research and Development (R&D): At this rapid pace of technological change, the need is felt to strengthen government support to startups in emerging fields like AI, biotechnology, and fintech. It might include bringing back or improving tax credits and deductions for R&D spending. This will make it easier for such startups to innovate and compete with others globally.
- Simplification of Compliance: The compliance requirements for start-ups are very complex. They expect the government to simplify the return-filing process, reduce paperwork, and provide greater clarity in the legal framework. This would save time and resources, allowing the start-ups to focus on growth.
- Access to Funding: Startups expect this budget to look into access funding by introducing more policies that favor private equity and venture capital with angel investments, for instance by offering tax relief to investors, or even starting government-backed funds to support their growth.
- Incentives for Job Creation: Startups are crucial job creators and expect tax incentives that encourage them to hire more employees, especially in high-skill areas. This can include deductions on newly opened jobs or tax breaks for startups that hire local talent.
- Support for Limited Liability Partnerships (LLPs): Most of the small and medium-sized startups are operating as LLPs because it is a simple structure. However, in all cases, this does not provide them with the same tax benefits as companies. Startups are hoping the budget will extend corporate tax benefits to LLPs so that they can expand and compete better.
- Infrastructure and Ecosystem Support: Among infrastructure improvements, improvement in digital as well as physical infrastructure is more sought after, such as connectivity, and power supply are also sought for better processing of registrations and permits among new businesses.
- Easier Access to International Markets: As firms look to expand and grow their operations abroad, it is in the hopes of doing business reforms abroad. This would then emphasize the relaxation of rules related to foreign exchange and tax rules concerning exports and international operations.
Startups are expecting the Union Budget 2025 to provide a more supportive environment through tax relief, easier compliance, access to funding, and incentives for innovation and job creation. These measures would help them scale up and contribute more significantly to the economy.
