So, the Union Budget for 2025 is near. How’s it going to be? What’s it going to end up like? What should entrepreneurs and investors expect? What are we going to be surprised about?
What could be done for the fund management ecosystem?
According to Anirudh A Damani, Managing Partner – Artha Venture Fund, “The fund management industry, currently constrained by outdated regulations and fragmented governance, could see a significant boost in efficiency with the establishment of a single-window clearance system for fund registrations and compliance. This change is crucial to simplify operations, especially for early-stage investors who need agility to support startups promptly. Introducing stability in the regulatory framework will not only encourage more domestic and foreign capital inflow but also provide a sense of security to the industry. Frequent regulatory changes disrupt business continuity and stifle innovation in fund management, making stability a key factor for growth”.
What about SIDBI’s FFS (Fund of Funds for Startups)?
Damani remarks, “The FFS program has been instrumental in catalyzing startup growth, but further enhancements are needed. Renewing SIDBI’s allocation with an additional ₹10,000 crores will ensure continued support for startups. Beyond FFS, India 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 – $10 billion anchor fund, with SIDBI contributing 20%, could unlock significant startup capital, fostering long-term partnerships and global investor confidence. With SIDBI as the anchor, this approach will create a much-needed pool of patient capital, catering to startups across stages. SIDBI’s credibility and experience supporting startups make it an ideal anchor for this fund, fostering long-term partnerships and global investor confidence”.
What about ESOP taxation?
According to Rashmi Guptey, CFO & General Counsel – Lightbox, “ESOPs granted to employees are taxed at 2 stages: once at the point of the exercise of stock options as a perquisite and at the point of sale of shares. Currently, only certain eligible startups are permitted a deferral of tax payment on perquisite. As a result, employees of non-eligible startups are required to pay tax at the point of exercise of options, rather than at the time of sale of their stock options, making it very burdensome from a cash-flow perspective. As a tool of retention, ESOPs would become more attractive and effective, if the perquisite tax burden is postponed to the point of sale of shares, for all private companies instead of restricting the relief to eligible startups referred to in Section 80-IAC of the Income Tax Act. Currently, the number of startups that have an 80 – IAC registration is dismal”.
Guptey remarks, “There should be efficient and transparent PLIs (Production-Linked Incentives) for SMEs, which make up about 30% of India’s GDP, in order to align with the “Make In India” initiative. Incentives for domestic manufacturing, such as subsidies on raw materials and machinery, along with tax breaks for MSMEs and startups would go a long way”.
“Furthermore, there should be a simplification of GST slabs. There ought to be amnesty schemes for tax log jams& pending refund claims and GST input tax credits, which are holding up cash flows. This would free up cash for the Government and businesses, reduce litigation and ease the woes of businesses grappling with uncertain liabilities. There needs to be a technology-enabled tax dispute resolution for faster solutions”, comments Guptey.
And could reforms in the capital market be expected?
Guptey declares, “We expect a historic IPO surge in 2025, with at least 25 new-age tech startups on course to join the public markets. This is a positive reflection of the growing confidence in new-age and consumer-driven tech startups maturing for public markets. We are hopeful that SEBI can implement an effective regulatory framework with the necessary checks and balances to ensure the robustness of the upcoming IPO cycle. We anticipate and hope that there is clarity in areas such as pricing transparency, promoter backgrounds, scrutiny of KPIs of businesses, valuations and business sustainability. We anticipate a shift from regulatory oversight to protectionist policies, while supporting the growth and maturity of the SME ecosystem. Clarity of regulations will help in boosting market confidence and analyst sentiment”.
“Many startups still face challenges related to inadequate physical infrastructure, particularly in Tier-II and Tier-III cities, which impact logistics, supply chain management and overall operational efficiency. Startups continue to grapple with rising operational costs, which can strain their financial sustainability. Enhanced budget allocation for infrastructure is, therefore, an imperative”, opines Guptey.
And what’s to be expected, when it comes to new-age sectors?
Guptey expresses, “New rules pertaining to foreign investments in quick commerce may be expected. We anticipate further reforms in quick-service restaurants, gaming sectors. The gaming industry’s expectations include, the rationalization of its GST rate from 28% to 18% for skill-based income tax relief, policy support and regulatory certainty to foster innovation via R&D grants. Enhanced budgetary allocation for R&D, particularly in AI, machine learning, quantum computing, and Blockchain. Ethical AI and policies, that encourage collaboration between academic institutions and industry players, particularly in areas, like chip design and AI hardware, can be expected”.
According to Ankur Mittal, Co-Founder – Inflection Point Ventures, “Tax parity between both domestic and international funds is critical to building a strong alternative investment environment in India. Harmonizing the tax treatment of international and local investors in Indian AIFs (Alternative Investment Funds) will not only provide a fair playing field, but will also boost India’s appeal as a competitive global capital destination. By addressing the underlying disparity, the government can demonstrate its commitment to inclusion, economic change and long-term growth in the investment environment”.
According to Bruce Keith, CEO & Co-Founder – InvestorAI, “2025 is expected to be dominated by global geopolitics and this will cause ongoing market volatility and short-term pain. With the currency already depreciating, I see the immediate impact of Trump Tariffs as being reduced and giving the Government space to re-energize its infrastructure investment. I see India as a destination of choice for overseas investors. However, the Indian Government should find more ways to encourage citizens to take part in equity markets – realizing that one’s savings are being eaten by inflation usually happens too late and tends to disadvantage the lower income strata of society”.
And are we not focusing on cybersecurity enough?
According to Pankit Desai, CEO & Co-Founder – Sequretek, “The FM must prioritize cybersecurity in the upcoming Budget. Given India’s alarming rank among the top 4 global victims of deepfake and digital arrest attacks, raising awareness about these threats is more important than ever. As the PM highlighted with ‘Digital Arrests’, increasing public and industry consciousness is key. Despite policies, local cybersecurity ecosystems face significant hurdles and need more governmental support, particularly in procurement processes that impede Indian-origin companies from effectively bidding for government contracts. These policies must be revised to foster a more inclusive environment for domestic cybersecurity firms. And while educational institutions have made strides in offering cybersecurity courses, practical skills remain underdeveloped. By supporting educational initiatives to provide hands-on experience, the government can ensure that students graduate with the practical skills required to bolster India’s cybersecurity defenses. More investment in cybersecurity infrastructure at educational institutions can enhance real-world readiness. With strategic investments, India can reinforce its cybersecurity defenses and talent”.
And is the definition of a startup too limiting in India?
“The current DPIIT startup classification limits eligibility to companies under 10 years of age or with revenue below ₹100 crores. These thresholds are restrictive and fail to accommodate late bloomers or startups in high-GMV and low-margin industries. Expanding the definition to include startups registered up to 20 years old and revising the revenue cap to reflect business models with significant GMV contributions will enhance inclusivity. This change aligns startup classification with MSME frameworks, ensuring fairness and better support for a broader range of innovative businesses”, quips Damani.
