SUMMARY

The extension of this Fund of Funds (FoF) by an additional INR 10,000 Cr will place a heightened emphasis on women entrepreneurs. Electronics manufacturing is expected to receive a boost through various policy measures. Additionally, Budget 2025 has eliminated the TCS provision that could have impacted the sale of securities.

Startup India Fund of Funds Acceleration

Commendably, the Startup India Fund of Funds (FoF) has mobilised nine times its original corpus, resulting in substantial capital available for investments in Indian startups. The FoF has served as a focal point, encouraging significant domestic investment in startups and decreasing reliance on foreign funding. The initiative launched in 2016 has proven pivotal in nurturing many current unicorns and startups preparing for an IPO.

The recent renewal of the FoF, with an additional investment of INR 10,000 Cr, signals a commitment to enhancing women’s participation in the economy. The Economic Survey indicated that nearly half of all DPIIT-registered startups include at least one woman director, and these new measures will further strengthen the trend.

Tax Benefits for Startups

In a positive development, the tax holiday window for startups has now been extended to cover all entities registered until March 31, 2030. To qualify for any tax benefits under the Income Tax Act, 1961, startups must:

• Be registered with DPIIT
• Be incorporated between April 1, 2016, and March 31, 2030
• Obtain a certificate from the Inter Ministerial Board (IMB)

However, the IMB has faced criticism for its opaque processes that have led to many startups being denied tax benefits. While the tax holiday may be reconsidered, other advantages such as deferred ESOP taxation and the ability to carry forward losses hold immense significance for early-stage startups.

It is crucial to reform the IMB certification to make it more objective and aligned with market needs, especially as countries in the Middle East are vying to attract Indian startups with enticing tax incentives.

Enhancing Rural Access Through India Post

Indian startups stand to gain from the strategic deployment of India Post as a vital resource for the rural economy. India Post will now offer a variety of services that include:

• Rural community hub colocation
• Institutional account services
• Direct Benefit Transfers (DBT), cash out and EMI pick-up
• Credit services for micro-enterprises
• Insurance
• Assisted digital services

These services will enable direct-to-consumer (D2C) brands to reach every corner of India. For example, even Amazon relies on the USPS for its last-mile delivery. Allowing startups similar access will democratise their products. Combined with the tax adjustments that render incomes up to INR 12.75 Lakh tax-free, this will bolster domestic consumption.

Support for Electronics Manufacturing

Electronics manufacturing is poised to experience growth thanks to policy interventions. The reduction in input costs for domestic production reflects the government’s intention to invigorate this sector.

Measures for AIFs

By categorising securities held by Indian AIFs as “Capital Assets” under Section 2(14), any profits from their sale will be classified as capital gains rather than “Business Income”. This was already an advantage provided to FPIs in 2014 to minimise litigation, and now Indian AIFs benefit from the same clarity. This will likely enhance capital formation through AIFs.

Furthermore, Budget 2025 has discarded the TCS provision that might have applied to the sale of securities. The vague language regarding this provision previously caused friction and confusion regarding exits. Its removal is expected to expedite exits and enhance tax clarity.

Although the government’s efforts to mitigate tax litigation and deliver tax certainty might not be as headline-grabbing as substantial fiscal allocations, streamlining the ease of doing business is essential for promoting capital formation and driving economic growth. Budget 2025 has prioritised these foundational aspects.