Budget 2024-25: Startups hope to overcome funding shortages, get tax concessions and boost R&D

Posted on 22nd Jul 2024 by rohit kumar

Finance Minister Nirmala Sitharaman made several announcements for startups in the interim budget presented in February. The period for setting up a startup for tax exemption was extended to March 31, 2025. Many steps were also taken for the startup ecosystem in the budgets before that. Despite this, the formation of new startups has slowed down in the last two years, investment in them has decreased and many startups have also done large-scale layoffs. The importance of startups is increasing in every sector from education, health, and agriculture to industry. They are bringing new solutions that are helping to increase productivity and reduce costs. To promote them, experts have given suggestions like removing the lack of funding, giving tax concessions, and promoting skill development and R&D. Given the growing steps of Indian startups in the space sector, abolition of GST on components and a separate production linked incentive (PLI) have also been recommended.

 

Steps to Boost Space Startups

 

The Indian Space Association (ISpA) in its recommendations to the government has said that satellite launch services are currently exempted from GST. This exemption can be extended to critical components of satellites, ground systems, and launch vehicles for the benefit of the sector's value chain. Similar exemptions should also be given on the purchase of key goods and services (including capital goods) for satellite launch services.

 

ISpA has also demanded PLI for the manufacturing of space-grade components like the PLI scheme for drones and their components. It says that this will help in encouraging domestic production and attracting investment under the "Make in India" campaign. The number of NewSpace startups registered in India has crossed 400. Many of these are keen to raise capital. Clarity in foreign direct investment (FDI) for this sector will be beneficial for them. FDI will also reduce the cost of business for companies.

 

According to ISPA, there are plans to develop space industrial parks in various states, and many non-governmental entities (legacy and startups) are looking to make large greenfield investments. Therefore, other initiatives such as tax exemptions/tax holidays/accelerated depreciation should be considered for companies directly or indirectly engaged in space sector activities. In addition, customs duty exemptions should be considered on the import of goods/equipment/machinery used in the manufacture of goods notified under the Goods Import Scheme at Concessional Rate of Duty (IGCR).

 

Need to strengthen the deep tech ecosystem.

 

According to Manoj Agarwal, co-founder and managing partner of venture capital firm CFund, “I have high expectations from the upcoming budget in terms of strengthening the deep tech ecosystem in India. The government has also made statements about supporting the sector. I believe it is important to provide more support in the early stages.” He says that deep tech startups often need significant R&D and it is difficult to attract investment from the private sector in the early stages. A dedicated fund of funds is important to support investors looking to enter this sector.

 

According to Neha Singh, co-founder of Tracxn Technologies, a firm that tracks startup investments, "A dedicated policy for deep tech startups and special funds for emerging areas such as electric vehicles and renewable energy will provide significant financial support and promote innovation. This will position India as a global leader in sustainable technology."

 

Demand for tax exemption

 

According to Shreejay Sheth, founder of Legalwiz.in, a company that provides legal services to startups, startups also expect better implementation of existing tax exemption policies under Section 80-IAC and Section 56 for income tax and angel tax. Anirudh Damani, managing partner of Arth Venture Fund, feels that the government will take steps to develop the entrepreneurship ecosystem in this budget. One way to do this is to abolish the system of angel tax, which is currently a big burden for startups.

 

Neha Singh says, “On the investor front, venture capitalists are hoping for the removal of angel tax to boost investment in startups. Reforms such as streamlining the process of filing tax returns, reducing regulatory burden, and tax exemptions for investors will be important. We hope that this budget will not only continue tax incentives but will also focus on easing the overall business environment.”

 

Manoj Agarwal of CFund says it is necessary to simplify the tax structure for startups and investors. In many European countries, investors get tax exemption on investing in startups directly or through funds. Similar provisions in India can encourage domestic investment.

 

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Sameer Gandotra, Founder and CEO of retail tech grocery chain Friendy, says, abolishing angel tax and tax exemption on capital gains from the sale of residential property to startup investors, both these measures will help boost the startup ecosystem. Taxing the actual sale of its shares instead of ESOP will allow more employees to get ESOP and this will help startups attract talent.

 

Startups need funding

 

Neha Singh says the startup ecosystem will welcome any government move that helps them deal with the current trend of declining funding. Access to funding is very important for startups, especially in the early stages. Government-backed venture funds and foreign investment regulations have had a positive impact, and we expect further measures that can make funding easier. Specific initiatives are needed in sectors such as healthcare, agriculture, insurance, infrastructure, and energy to boost economic growth and innovation. We expect targeted tax incentives in these sectors to encourage investment and growth.

 

Shreejay Sheth says startups expect measures to address funding constraints to grow business along with ease of doing business. Budget allocations may increase, especially in specific sectors such as renewable energy, artificial intelligence, infrastructure, and fintech. Public-private partnership (PPP) opportunities may also open up in these areas. There may be a special focus on fintech to develop GIFT City in Gujarat as a pan-Asian destination.

 

According to Manoj Agarwal, a simplified GST regime for funds and the elimination of angel tax will make a lot of domestic capital available for early-stage funding. This is needed more than ever today as funding for startups is becoming difficult.

 

Pankit Desai, CEO and co-founder of cybersecurity firm SecureTech says, "We would like to see these changes in the budget - extension of tax holiday (right now it is only for three years out of the first 10 years), reduction in GST rates and easy tax compliance to reduce financial burden. Apart from this, steps like help in accessing global markets, favorable trade agreements and platforms for international exposure, government-backed funds and grants, incentives for investors, and easy access to low-interest loans should also be taken. Support is also needed for the development and adoption of emerging technologies like artificial intelligence, blockchain, and IoT.

 

Need for education startups.

 

Ajit Kumar, director of edutech company Yuvipep, says, "Investment made in innovation today shapes the workforce of the future." A certain amount should be allocated for the Atal Tinkering Mission (ATM) with a smart public-private partnership (PPP) model. This will bring the expertise of private industry to government schools and improve the innovation ecosystem. Tax exemptions and relief from GST on educational services will encourage such participation more. We can take the country towards a developed future in the next 30 years by equipping young minds with industry experience and problem-solving skills.

 

Cyber ​​security infrastructure is necessary along with skill development.

 

According to Neha Singh of Tracxn, there are many expectations in the budget from tax relief to ease of doing business through reduction of regulatory barriers and regularization of reforms. Continuous skill development of the workforce is also necessary in emerging technologies like artificial intelligence. Therefore, we hope that the budget will have the necessary training and skill development measures so that our workforce remains relevant and competitive.

 

Pankit Desai says the emphasis should be given to increasing the national cyber security infrastructure through dedicated funds in both government and private sectors to prevent data breaches and cyber-attacks. This is especially important for sectors like banking, energy, healthcare, and transportation. This will require investment in cyber security education in universities and technical institutes and continuous skill development along with creating a strong pipeline of cyber security professionals.

 

Manoj Agarwal of CFund gives another important suggestion. He says we need to solve 'reverse flipping' for businesses formed in India but headquartered abroad. Bringing these businesses back to India can greatly benefit our economy and government revenue in the long run.