Union Budget 2025 | Nourishing the world’s third largest start-up ecosystem

With a growing number of new age companies, India stands at number three in the global start-up ecosystem with over 159,000 entities registered with the Department of Promotion of Industry and Internal Trade (DPIIT). So how do Budget 2025 proposals help? 

Sunset clause extended: To nurture innovation and growth, the income-tax law allows eligible start-ups (ESUs), complying with conditions, to be exempt from tax for three consecutive years, out of 10 years from the date of its incorporation. The choice of exercising the three years is that of the ESU. However, there was a condition that the date of incorporation of the start-up should not extend beyond March 31, 2025. This sunset clause is now proposed to be reset to March 31, 2030. A welcome move for a sector that is growing fast. 

Capturing merger trends: The start-up world today is trending with the acquisition of mid-sized firms by larger ones, consolidation of two or more new age businesses and in the flipping of structures back to India. It is heartening to note that there has been a recognition of this trend and multiple measures have been provided to ease mergers. 

* Requirements and procedures for speedy approvals of mergers will be prescribed

* Scope of fast-track mergers will be expanded 

Corporate guarantee cover enhanced: To improve access to credits, the credit guarantee cover for start-ups will be raised from Rs 10 crore to Rs 20 crore and the guarantee fee will be reduced to 1 per cent (from 2 per cent) for loans extended to 27 priority sectors crucial for Atmanirbhar Bharat, thereby fostering growth and innovation in these areas.

Best of the rest: Other moves such as rationalisation of withholding tax provisions by enhancing limits, and the need for a taxpayer to check the compliance undertaken by the recipient, has been done away with. 

Start-ups with overseas operations will also benefit from the transfer pricing safe harbour provisions that are proposed to be expanded and the determination of arm’s length price once in three years, instead of annually. 

What more did we expect? There is no incentive under the current scheme for an ESU to grow. The ESU incentive outlined is available for those units with turnover not exceeding Rs 100 crore. This limit needs either to be enhanced or dropped. There should be no boundaries. As regards mergers, one expected broadening the availability of losses to all sectors and not limiting them to traditional software units and a few others.

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Union Budget 2025 | Nirmala Sitharaman, as Finance Minister, presented her record 8th Union Budget this time. While inflation has burnt a hole in the pockets of 'aam janata', the Modi govt gave income tax relief for those making up to Rs 12 lakh per year in salaried income. Track the latest coverage, live news, in-depth opinions, and analysis only on Deccan Herald. Also follow us on WhatsApp, LinkedIn, X, Facebook, YouTube, and Instagram.