With more than 1.59 lakh startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) as of January 15, 2025, India has firmly established itself as the third-largest startup ecosystem in the world.
To take this growth further, the sector has urged the government to introduce a simplified tax regime, enhance the ease of doing business and remove bureaucratic hurdles that complicate operations, in the upcoming Union Budget.
The sector remains optimistic that the upcoming budget will introduce measures that enable startups to scale and further contribute to the nation’s growth and development.
Industry observers believe that the Union Budget 2025 is pivotal for India’s startup ecosystem.
Simplified taxes and reduced compliance under labor and IP laws can drive early-stage growth. Sectors like deep tech, AI, space, and green technologies need stronger government support—building on the Rs 1,000 crore space fund announced last year—to enhance global competitiveness, said Winnie Shekhar, Partner, IndusLaw.
Sector has also sought focused policies for blockchain adoption, Web3 innovation, and crypto investments, including revisiting the 30% tax and 1% TDS, given their global relevance.
At present, the Indian economy is navigating a complex landscape, with a projected GDP growth of 6.4%. This decline from previous years underscores the urgent need for strategic interventions to stimulate growth and investment in the startups, say experts. Therefore, it is crucial to create an environment that not only alleviates immediate financial pressures but also fosters long-term sustainability and innovation.
Rationalisation Of Tax Regime
Rationalising GST from 28% for the gaming sector is essential to curb the 83% player spending migrating offshore.
Tax cuts for EVs, expanded charging infrastructure, and green technology support can further sustainability goals. The beauty sector would benefit from a GST cut on cosmetics from 18% to 12%, boosting domestic manufacturing and exports, said Shekhar.
Satish Kannan, co-founder and CEO, MediBuddy, told Storyboard18 that reforms in GST are crucial for the growth of the startup ecosystem.
“We urge the government to streamline the GST structure for digital platforms, acknowledging that digital innovation is the future. Simplifying regulatory processes and enhancing access to funding through extended tax holidays and performance-linked incentives (PLI) would significantly support startups in scaling their operations,” he added.
The recent abolition of the angel tax on startup investments has already begun to create a more conducive environment for innovation and growth.
Anand Jain, co-founder and CPO, CleverTap added that offering broader tax benefits for AI adoption, especially for deep-tech startups, would encourage local breakthroughs and boost India’s competitiveness in the worldwide AI arena.
Complex tax structures often deter global investors, so a simpler, more transparent tax framework for foreign funds would significantly increase capital inflows.
At a broader level, while income tax slabs were updated last year, government should consider revisiting them given rising living costs.
Integration of Startup-centric Initiatives
The government’s focus on startup-centric initiatives, such as Digital India, Startup India, and Ayushman Bharat Digital Mission, has created a strong foundation for collaboration.
Integrating startups more seamlessly into these programs can unlock new synergies, said Kannan.
In the healthcare sector, introducing health-linked savings products with tax benefits, akin to the National Pension System, will encourage long-term investments in health.
Ease of Funding
The Venture Capital (VC) sector has acted as a critical enabler of the startup ecosystem growth.
While VC funds look to ease access to capital for early-stage startups, fundraising has become increasingly challenging due to global economic headwinds. The industry seeks government-backed initiatives, such as enhancements to the Fund of Funds for Startups (FFS) and targeted incentives for early-stage VC investments, shared Milan Sharma, founder and MD and 35 North Ventures, an early-stage AIF focused on empowering startups.
Additionally, liquidity remains a key concern for venture capitalists. Streamlining the process for public listings, introducing frameworks for startup-specific IPOs, and encouraging secondary markets can provide VCs with better exit opportunities, thus boosting the overall investment cycle.
Further, as India’s startup ecosystem diversifies to include health-tech, agritech, and sustainability-focused startups, sector expects the budget to encourage investments in these emerging sectors through sector-specific tax benefits, grants, or subsidies.
In 2024, despite global economic challenges, the ecosystem demonstrated resilience by securing $11.2 billion in funding, a notable increase from $9.4 billion in 2023. This trend highlights the potential for even greater success with the right fiscal policies.
Improving access through schemes like the Credit Guarantee Scheme for Startups is essential. Easier credit availability would allow to scale without incurring high-interest burdens, facilitating growth during critical phases of development.
Ease of Doing Business
Startups often face significant bureaucratic hurdles that complicate the operations.
Somdutta Singh, founder and CEO, Assiduus, said that it is essential for the government to streamline compliance processes, especially for early-stage companies.
Simplifying regulations would significantly enhance operational efficiency and encourage more individuals to embark on their entrepreneurial journeys.
The data speaks volumes; since 2014, Indian startups have raised approximately $150 billion, with a record $48 billion in 2021-22 alone. This indicates a robust appetite for innovation and growth within ecosystem, which can be further amplified through supportive policies.
Streamlined Compliance for Global Investors
Complex regulatory requirements and restrictions on foreign investments often deter international investors who are otherwise significant sources of funding for Indian startups. Simplifying regulations under the Foreign Exchange Management Act (FEMA) and providing clear guidelines for cross-border investments can make India a more attractive destination for global investors, pointed out Sharma.
Infrastructure development is also paramount, Singh added, which would support startups in scaling their operations effectively.
Moreover, enhancing support for intellectual property rights (IPR) is essential for fostering innovation, she said.
Startups need improved mechanisms for IPR protection, including expedited patent processing and reduced fees. By safeguarding the inventions, one can encourage more robust investment in new ideas and technologies.