As the Union Budget for FY24 approaches, with less than two weeks to go, the anticipations within the entrepreneurial realm are palpable. A crucial litmus test for economic policies, this budget holds particular significance for the burgeoning startup ecosystem in India.
Given that India’s startup ecosystem is the third-largest in the world and comprises over 92,683 emerging companies as of February 2023, expectations are running high from the startup community and all its stakeholders.
As we eagerly await the budgetary unveilings, the overarching question looms — will the Union Budget 2024 be the harbinger of growth for the dynamic startup landscape in India?
Keeping A Close Watch
Industry leaders and innovators have articulated their expectations, underlining the potential of fiscal measures to shape the trajectory of growth for startups. The budgetary allocations and policy decisions will be closely scrutinised, gauging their capacity to provide a robust impetus to the startup landscape.
The contours of the budget are expected to play a pivotal role in fostering an environment conducive to entrepreneurial ventures, offering insights into whether the fiscal measures will act as a catalyst for the progress of the startup ecosystem and the force that fosters its growth, i.e., the investor community.
Standardising Capital Gains Tax
A crucial expectation from the investor community which fosters the startup ecosystem revolves around the standardisation of capital gains tax. The desire is to establish uniform tax rates and holding periods for both private and publicly listed shares.
This move is anticipated to bring clarity and coherence to financial regulations, streamlining the taxation process for investors across various investment avenues.
Expanding Tax Deferral on ESOPs
Another key expectation is the expansion of the tax deferral on Employee Stock Ownership Plans (ESOPs). Presently, this benefit is confined to employees of startups falling under section 80-IAC of the Income-Tax Act, 1961. Investors advocate for an extension of this tax deferral to encompass all employees of startups registered under the Department for Promotion of Industry and Internal Trade (DPIIT).
Such an expansion is seen as a strategic move to incentivize and retain talent within the startup sector.
Inclusive Tax Regimes for Firms
Investors are emphasising the need to extend concessional tax regimes, currently applicable to companies, to also cover partnership firms and Limited Liability Partnerships (LLPs).
This expansion is expected to create a level playing field, encouraging diverse forms of entrepreneurial structures to thrive under favourable tax conditions.
Personal Tax Regime Flexibility
Taxpayers are advocating for flexibility in switching between the old and new personal tax regimes. This expectation reflects a desire for individuals to have the autonomy to opt for a tax structure that aligns with their financial objectives.
Summing up
The expectations from VCs, other investors, and the entire startup community for the Union Budget 2024 revolve around creating a more conducive investment environment through standardised taxation, inclusive benefits for employees, and flexible tax regimes for individuals.
These measures, if implemented, will most certainly play an instrumental role in boosting the overall progress of the startup ecosystem in India.
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