Not just India hosts the third-largest startup ecosystem globally with over 1,41,780 DPIIT-recognised startups, but it also has generated over 12.42 lakh direct jobs.
As the Union Budget 2024 is set to be released by the Finance Minister on July 23rd, startups are looking forward to supportive policies.
Tax Incentives: an across-the-board appeal
While DPIIT reports 2,998 tax exemptions, startup CFOs have specific expectations.
Manufacturing companies benefit from lower tax rates to boost activities in line with the Make in India initiative. Similar tax incentives should be considered for startups, especially those working to strengthen the Digital India initiative.Arpit Chug, CFO, Razorpay
Incentives such as weighted tax deductions and subsidies for R&D employee costs would significantly promote R&D activities in the startup ecosystem and create more employment opportunities, he added.Regarding the tax amnesty scheme, Abhinav Jain, SVP, CoinDCX, suggested, “Tax dues and demands before 2014 can be settled without any interest as a one-time gesture for taxpaying individuals and corporations. Such initiatives will push the essential sectors of the economy to its full potential.”
Tax amnesty allows taxpayers to voluntarily disclose and pay tax in exchange for avoiding penalties for tax evasion and, in some cases, interest.
“Dealers or traders who supply goods and services through e-commerce operators face a 1% TCS and 1% TDS deduction under GST and Income Tax, which should be revised to 0.1%. Similarly, the 1% TDS on transfer of VDAs can also be reduced to 0.1%, boosting the sector and adding more traders to digital platforms,” added Abhinav Jain.
Tanmay Kumar, CFO, Shiprocket, also advocates for offering tax breaks for export earnings and R&D.
Measures to bolster India’s investment climate
Indian startups witnessed a significant dip in investment in 2023.
Expressing concerns about investment in startups, Abhinav Jain said, “Long-term capital gains arising from the transfer of unlisted stocks need to be included in the ambit of Section 112A and taxed at 10%. The same benefits should be extended to ESOPs.”
Providing capital gains tax relief for investors would alleviate financial pressures and encourage more venture capital investment. Increasing the allocation of government-backed venture capital funds and expanding credit guarantee schemes would provide reliable funding sources.Tanmay Kumar, CFO, Shiprocket
Where do CFOs want the government to spend?
Looking at the capital crisis post-funding winter, the startup ecosystem needs support in terms of a positive policy framework for ease of capital infusion.Abhinav Jain, SVP, CoinDCX.
Addressing MSME participation, Tanmay Kumar of Shiprocket urged the government to establish dedicated e-commerce export hubs, offer tax breaks for export earnings and R&D, and simplify access to capital for MSMEs.
By facilitating private sector initiatives in market access creation, the government can foster a robust ecosystem for MSME e-commerce exports, he added.
CFOs demand regulatory clarity and reduced compliance costs
“Streamlining regulatory processes with a single-window clearance system and offering enhanced R&D tax credits would foster innovation and reduce administrative burdens,” remarked Tanmay Kumar, CFO, Shiprocket.
There are inconsistencies in food safety regulations across different states and even within municipal jurisdictions. Standardising these regulations or establishing a unified framework for consistent compliance requirements would simplify our operations and ensure uniform standards nationwide.Jaipal Singal, CFO, iD Fresh Food
Simplifying regulations and reducing unnecessary bureaucratic procedures could lower compliance costs while maintaining robust food safety and hygiene standards, he added.
Jaipal Singal also hopes to see measures such as streamlined GST procedures, simplified bureaucratic processes for licenses and permits, and a nurturing environment that encourages entrepreneurship within the food sector.
