Anushruti Singh
As the Union Budget 2024 approaches, key stakeholders in the venture capital (VC) industry have expressed their expectations and concerns. The industry is optimistic about potential reforms that could significantly impact the startup ecosystem in India.
Call for removal of angel tax
Anil Joshi, Managing Partner at Unicorn India Ventures, emphasised the need for the removal of the Angel Tax, a long-standing demand from the VC community.
“The venture capital industry is very young and has certain expectations from the Honourable Financial Minister. Removal of Angel Tax has been a long-standing demand of the industry. Stakeholders of the ecosystem have made representation to the Govt with an aim to find a solution for the same,” Joshi stated.
He highlighted the challenges early-stage companies face due to limited resources and the potential discouragement of investors due to fear of tax authorities’ scrutiny. “It’s a long-pending demand and we wish Hon. FM takes it up in the upcoming Budget. The solution will encourage many potential tax payers to open up to the investment of this asset class,” he added.
Joshi also pointed out other critical demands, such as favorable consideration to GST on management fees and adjustment of management fees towards expenses while calculating income or gains. He stressed the importance of bringing long-term gains at par with listed entities and speeding up the approval process for overseas investments.
Boosting deep tech ecosystem
Manoj Agarwal, Co-founder and Managing Partner at Seafund, expressed hopes for the budget to strengthen India’s deep tech ecosystem. “I have high hopes for the upcoming budget to strengthen the deep tech ecosystem in India. The government has made encouraging statements about supporting this sector, and I believe it is crucial to provide more backing at the seed stage,” Agarwal said.
He underscored the significant research and development required by deep tech startups, which often deters early-stage private investment. “A dedicated fund of funds to support investors who are willing to take the plunge into deep tech is vital,” he noted.
Agarwal also emphasised the need for a simplified taxation framework for startups, ESOPs, and investors. Drawing comparisons to European countries where investors receive tax benefits for investing in startups, Agarwal suggested similar provisions in India to stimulate more domestic investment. He also called for addressing the issue of ‘reverse flipping’ for businesses built in India but headquartered abroad. “Facilitating an efficient and tax-effective way for these businesses to return to India could significantly benefit our economy and the government’s revenue in the long run,” he explained.
Simplified GST tax regime and angel tax abolition
Both Joshi and Agarwal highlighted the necessity of a simplified GST tax regime and the abolition of the angel tax. Agarwal remarked, “A simplified GST tax regime for the funds and doing away with angel tax will free up a lot of domestic capital towards early-stage funding, which is needed today more than ever as we see funding winter thawing at a snail’s pace.”
The VC industry’s expectations from the upcoming budget are clear: removal of the Angel Tax, support for the deep tech ecosystem, simplification of the taxation framework, and a streamlined GST tax regime. As the government gears up to present the budget, the VC community hopes for reforms that will foster a more conducive environment for investment and growth in the Indian startup ecosystem.
