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Will India’s Startups Get a Boost in This Year’s Budget?
India's Startup Boom: What the Budget Could Unlock Next!
India’s startup ecosystem is thriving like never before, solidifying its position as a global powerhouse of innovation and entrepreneurship. With 1,60,026 registered startups and over 7.64 lakh users on the Startup India portal, the momentum is unmistakable. Beyond the impressive numbers lies a transformative impact: startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) have generated over 17.2 lakh jobs, fueling economic growth and creating opportunities across the nation. Leading the charge are sectors like IT services, healthcare, and professional services. Meanwhile, the emergence of 118 unicorns with a collective valuation of ₹30 lakh crore underscores India’s capability to foster billion-dollar enterprises. The startup boom is not just a trend but a fundamental reshaping of the country’s economic landscape.
Startups are the backbone of modern economies, driving innovation, creating jobs, and reshaping industries. In India, while the startup ecosystem has seen exponential growth, sustaining this momentum requires targeted policy measures. The upcoming budget presents a crucial opportunity to bolster India’s startup ecosystem and position the nation as a global leader in entrepreneurship - Sushanto Mitra, CEO, Lead Angels
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Writing Off Startup Investments Over Five Years
Globally, tax incentives have proven to be an effective way to encourage startup investments. For instance, the United States’ Qualified Small Business Stock (QSBS) provision allows investors to exclude up to $10 million or 10 times their investment in qualifying startups from capital gains taxes if held for five years. Similarly, the UK’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer 30%-50% income tax relief and exemptions on capital gains after a three-year holding period. The UK government has further extended the EIS and Venture Capital Trusts (VCTs) programs until April 2035, enabling investors to reclaim up to 30% of their startup investments through income tax relief. Since their inception, these schemes have generated over £41 billion for companies. Other countries, such as France and Germany, also provide robust tax incentives to foster startup growth.
What Global Policies Can Teach India About Startup Success
Inspired by these global models, India could consider allowing investors to write off startup investments over five years, thereby de-risking early-stage funding. Extending similar benefits to employee stock options and SEBI-approved venture funds would not only attract capital but also help retain talent within the ecosystem - Sushanto Mitra, CEO, Lead Angels
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Simplifying Compliance: A Game-Changer for Indian Startups?
Despite significant progress made by DPIIT, complex regulatory requirements remain a challenge for early-stage startups in India. Tax filings, labor laws, and other compliance measures consume valuable time and resources that could otherwise be directed toward growth. Introducing a grace period for DPIIT-registered startups—similar to Singapore’s three-year tax exemption for new businesses earning up to S$200,000 annually—could ease this burden and enable founders to focus on scaling their ventures.
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Other countries have also simplified compliance to support startups. The United States, under the JOBS Act, reduces reporting requirements for small businesses, enabling them to raise capital with fewer regulatory hurdles. The UK’s Companies House system facilitates online registration and annual filings with minimal paperwork, while its “Making Tax Digital” initiative mandates digital record-keeping and submissions, significantly reducing administrative burdens. Adopting similar measures in India would go a long way in creating a more conducive environment for startups.
Why Startups Need R&D Tax Relief
Critical sectors such as defense and healthcare often require substantial R&D investments, which can be a significant barrier for startups. Tax deferments and credits could help mitigate these challenges. For instance, the United States’ R&D tax credits allow startups to offset payroll taxes by up to $250,000 annually. In the UK, the Research and Development (R&D) Tax Relief scheme enables startups to claim up to 33% of qualifying R&D expenditures as tax credits or cash reimbursements.
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India could implement similar incentives to support startups tackling national priorities such as defense technology and societal challenges like an ageing population. These measures would not only boost innovation in critical sectors but also build capabilities essential for the country’s long-term growth and security - Sushanto Mitra, CEO, Lead Angels
What’s Next for India’s ₹30 Lakh Crore Startup Ecosystem?
By introducing measures such as investment write-offs, simplified compliance, and targeted tax incentives, India can democratize access to venture capital, nurture talent, and support critical sectors. These initiatives would foster a culture of innovation while addressing pressing challenges and creating a thriving startup ecosystem. The time to act is now—to sustain India’s startup momentum and cement its position as a global leader in entrepreneurship.