The extension of tax benefits for start-ups, investments by sovereign wealth or pension funds, and exemptions for certain IFSC units till March 31, 2025, got a big thumbs up from industry players
Finance Minister Nirmala Sitharaman, in her address on the Interim Budget 2024, maintained the status quo on taxation, adhering to convention and providing stability to the economy.
"I propose to retain the same tax rates for direct and indirect taxes, including import duties," she stated, assuring continuity in the prevailing tax regime.
"However, certain tax benefits to start-ups and investments made by sovereign wealth or pension funds as also tax exemption on certain income of some IFSC units are expiring on March 31 2024; to provide continuity, I propose to extend the date to March 31 2025," she added.
Although largely in line with the historical interim budgets, the FM's announcement of zero changes in direct and indirect taxes, including import duties, for the FY 2024-25 surprised several in the industry, including Archit Gupta, CEO of ClearTax.
"No big-ticket reforms about the tax rates were expected in the interim budget 2024. However, the FM announced the continuation of certain tax benefits for start-ups, investments made by sovereign wealth or pension funds and tax exemption on certain incomes of specific International Financial Services Centre (IFSC) units up to March 31 2025," seemingly left him perplexed.
However, others believe that the direct tax benefits extended to start-ups and IFSC units would help the respective sectors achieve stability and continuity.
In recent times, India's start-up landscape has experienced rapid expansion and an equal amount of headwinds, which showed that while it had the potential to become a significant catalyst for economic development, prudence is a quality that founders and their investors need to emulate.
While this change takes effect, the FM's proposition to prolong the tax holiday for an additional year is poised to expedite the start-up sector's growth and provide momentum to India's entrepreneurial community. Initiatives like PM Mudra Yojana, Fund of Funds, Start-up India, and Start-up Credit Guarantee Schemes are already in place to help them, but access to capital is a constant cry from all players.
Against this backdrop, start-ups and investments supported by sovereign wealth funds, pension funds, and specific IFSC units will further benefit from an extended tax break, consequently contributing to a rise in foreign capital inflows in India.
S Vasudevan, executive partner of Lakshmikumaran and Sridharan elaborated that the extension of this timeline by a year includes the last date for incorporation of companies and LLPs to qualify as eligible start-up for tax exemption under section 80-IAC window "in which specified investments made by certain offshore sovereign wealth funds/ pension funds qualified for tax benefits and cut-off date for setting up of offshore banking units or other units in IFSC to qualify for tax exemptions on certain specified income," he added.
While weighing in on the implications of the budget, experts and industry stakeholders observed there have been no major overhauls to the tax proposals and partly aims to achieve internal housekeeping. In her speech, Sitharaman emphasised the strides the government had made towards solidifying indigenous development and its plans to double down on research and innovation in India and augment advancement in technology tools with greener, sustainable and futuristic methods.
Applauding the interim budget, PM Modi underlined that one of the two important budget decisions was about the Rs 1 lakh crore research and development fund. Anuj Parekh, co-founder and CEO at Bharatsure, also hailed the government's announcement for this corpus with a 50-year loan, tailored explicitly for tech-savvy growth aiming to offer long-term financing or refinancing with extended tenors and low to zero interest rates.
He opined, "The Rs 1 lakh crore corpus of low-interest financing for the sunrise sector is going to be a game-changer for new innovation and development. This will indirectly benefit start-ups who have faced challenges over the last few years to secure financing," he said, eagerly awaiting more details on these initiatives."
While lauding the budget's support for start-ups, Sudeep Kulkarni, founder of Game Theory, underscored the significance of its focus on bilateral treaties and geographical inclusion, which he believed aligns with India's growth objectives.
The FM revealed that the inflow of foreign direct investment (FDI) from 2014 to 2023 was $596 billion, which she maintained was twice the inflow from 2005 to 2014. "To encourage sustained foreign investment, we are negotiating bilateral investment treaties with our foreign partners in the spirit of FDI," Sitharaman added.
However, Sonam Srivastava, founder of Wright Research, lamented the budget's lack of specific measures for the technology sector, suggesting targeted initiatives for start-ups and innovation hubs to bolster competitiveness. "One notable omission in the budget discussions was the lack of specific measures for the technology sector, especially in direct incentives for start-ups and innovation hubs.
While the focus on deep tech in defence and digital infrastructure improvements indirectly benefits the tech industry, targeted initiatives could have provided a more significant boost," she noted.
Going forward, it will be crucial for the government to address this gap through policy measures and incentives to ensure the continued growth and competitiveness of the Indian tech sector on a global scale. That, hopefully, will feature prominently in the upcoming budget.