Start-ups expect simplified tax regime

Experts call for strengthening SIDBI’s Fund of Funds for Startups (FFS).
Image used for representational purposes.
Image used for representational purposes.
Updated on
2 min read

BENGALURU: With the abolition of angel tax in the previous budget, the country’s start-up ecosystem saw a boost in early-stage investments, and now in the upcoming budget, they expect tax reforms, simplification of ESOP (employee stock option plans) taxation and extended tax holidays.

India, which has the third largest start-up ecosystem in the world, boasts over 1.59 lakh start-ups that are recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) as of January 15, 2025.

Ashwani Singh, MD of 35 North Ventures, an early-stage AIF focused on empowering start-ups, said that the current taxation structure, taxing ESOPs at time of vesting and the high tax burdens on capital gains for angel investors, hinder progress in the employee retention and funding landscape. He anticipates tax reforms in the upcoming budget to tackle these hurdles – simplifying ESOP taxation, streamlining capital gains tax structure across asset classes or introducing tax exemptions for angel investors and aligning them with global standards to encourage greater inflows of private capital into the start-up ecosystem.

Apoorva Ranjan Sharma, co-founder & MD of Venture Catalysts, said, a simplified tax regime for start-ups could be of great help, mainly for enterprises in Tier 2 and 3 cities. “A reduction in compliance burdens and extended tax holidays could provide the necessary impetus for these start-ups to scale rapidly,” he said.

Experts call for strengthening SIDBI’s Fund of Funds for Startups (FFS). “The FFS program has been instrumental in catalysing start-up growth, but further enhancements are needed. Renewing SIDBI’s allocation with an additional Rs 10,000 crore will ensure continued support for start-ups,” said Anirudh A Damani, Managing Partner, Artha Venture Fund.

He said that beyond FFS, the country requires a sovereign-backed fund of funds anchored by SIDBI, which allows contributions from banks, insurance companies, and global sovereign wealth funds. “A $5 billion to $10 billion anchor fund, with SIDBI contributing 20%, could unlock significant start-up capital, fostering long-term partnerships and global investor confidence,” he added. The current DPIT start-up classification limits eligibility to companies under 10 years of age or with revenue below Rs 100 crore. Experts call for including start-ups registered up to 20 years old and revising the revenue cap.

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