Amid the startup funding reset hit by investors to bring sanity to valuations and a growth-at-all-cost model, the VCs are hoping for an improved environment to do business with startups in the backdrop of better regulatory and tax measures. A number of them are categorically looking at tax-related announcements in the budget 2024 on February 1 by Finance Minister Nirmala Sitharaman. With the majority of startups struggling to raise capital, the upcoming budget may at least incentivise investors to back innovative ideas with a line of sight to profitability.
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Funds for deep tech, fintech, climate tech startups
Ankit Kedia, Founder and Lead Investor, Capital A: To sustain economic growth, the government needs to focus on allocating more funds to deep tech, fintech, and climate tech startups. For example, within the climate tech sector, India has set ambitious goals for reducing carbon emissions. Key segments such as clean mobility, renewable energy generation, and energy efficiency require substantial government support. To further boost startup growth, the government can offer tax incentives to venture capitalists investing in fintech, climate tech, and deep tech startups. Moreover, higher budgetary allocations for startup incubators and accelerators will also play a crucial role.
Treatment in taxation between listed and unlisted shares
Maneesh Bhandari, Founder and CEO, Growthpal: VCs seek equal treatment in taxation between listed and unlisted shares, particularly concerning Long-Term Capital Gain Taxes. Currently, there’s a disparity where investments in private shares are taxed at a higher rate of 20 per cent compared to 10 per cent for publicly traded shares. They propose aligning these taxes to incentivize investment in private companies, considering the higher risks involved. Moreover, there’s a plea to address what’s seen as double taxation, specifically with capital gains taxes and dividend taxes. Investors perceive this as taxing profits twice—once as income and again when gains are realized or dividends are distributed. Singapore’s model, which doesn’t levy capital gains or dividend taxes, is highlighted as an example to consider.
Generate more IPs
Deloitte India: Introduction of a simple and specific tax and regulatory framework, for PEs, VCs, and startups. Given that startups are at the leading edge of innovation, the government should look at creating an ecosystem to encourage startups to innovate and generate more intellectual properties and licences. The government should encourage technological innovation and promote competition through increased incentives and tax concessions for R&D and attract industry players to invest in more innovation and R&D.
AI and blockchain awareness
Shwetank Verma, Co-Founder & Managing Partner, Leo Capital: The government has consistently demonstrated its commitment to fortifying the startup ecosystem by introducing rewarding schemes, tax provisions, and dedicated funds, as evidenced in budget announcements over the past few years. With the burgeoning applications of emerging technologies like AI and Blockchain at the enterprise level, we anticipate initiatives that promote awareness, education, and ease of implementation. Moreover, sectors such as real-money gaming currently exist in a regulatory grey area. Despite the introduction of the relevant rules recently, there are ongoing deliberations creating uncertainty. We anticipate a definitive stance on this segment, providing clarity on its prospects in India.