Budget 2024: What's The Impact On Startups? | NDTV Profit
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00:00We've been talking about the budget impact from various angles and for startups, it's
00:24truly a good day.
00:27The big sword hanging over the head was the Angel Tax, which has been around for a very
00:33very long time.
00:34Budget after budget, you have this representation and request, please give us relief from Angel
00:38Tax.
00:39Well, this time it's actually happened, the Angel Tax goes.
00:42And you know, we've got the first reactions coming in.
00:45Vinita Singh, co-founder and CEO of Sugar Cosmetics, with us on this special show where
00:50we understand how much the budget really boosts startup India.
00:54Amit Jain, co-founder and CEO of Car Dekho Group with us, and we're also speaking with
00:58Ashish Tulsian, CEO of POSIST.
01:01Welcome to all of you and great to have you on this conversation where we're discussing
01:05all things budget.
01:06Well, let's start with the Angel Tax question.
01:08Vinita, why don't you go first?
01:10This has been a long term ask and from your smile, I can see you're really happy about
01:14it.
01:15Yes, I'm very happy and very grateful to the finance minister to finally be able to
01:22start up.
01:23Not just startups, but even venture capitalists, because of the 30% Angel Tax on early stage
01:30investing was a big, big barrier.
01:34And I think this will, all of this will result in the startup ecosystem getting a massive
01:38boost.
01:39Early stage funding is going to go up, I believe by 20-30%, creating a lot more opportunities
01:46for startups and eventually a lot more employment.
01:48So a very, very big green flag from the budget this year, and something that we've been waiting
01:55for almost a decade now, and all the startups that I know have gone through the journey
02:00of having to deal with income tax officials around Angel Taxes, and I think this is a
02:05big relief.
02:06All right.
02:07So the Angel Tax was a bit of a dark Angel Tax.
02:09Amit, I want to know, of course, your reaction and sort of give us a, I'm sure you've done
02:14a back of the envelope calculation by now.
02:16Give us an idea of what the impact is for a startup once this tax is removed.
02:22Look, the taxation is now, was 30% earlier, which is now practically nothing, zero.
02:29So the impact is actually huge.
02:31And problem was that you have not made money and you'd still had to kind of incur taxes
02:36earlier, which probably gets sorted out.
02:39So if you buy a one rupee and then the fair market value increases, the tax was being
02:44recognized.
02:45And if the files open, I think now everything will be put to rest.
02:48So overall, I personally think from my personal perspective, as well as anybody investing
02:52in Angel, investing in startups, this is going to be a very big boost.
02:57Many people who are sitting on the edge to invest would now probably join the bandwagon.
03:01It's not just financial, it's also about creating new Bharat 2.0, which will have a big impact
03:07with this clarity that has come now on taxation.
03:11It goes on from now.
03:12So I don't know if the files that are already open close overnight, but it's hence on, hence
03:19on.
03:20Ashish Tulsian, your response to the Angel tax relief and also is this coming at a time
03:23when there has been a concern that startup funding is drying up and that's been happening
03:28for a while.
03:29I think the last two, three years or so.
03:30So even as private capex is increasing, et cetera, that whole startup buzz sort of has
03:37been dying.
03:38Do you think that this is the trigger to revive it?
03:42I think this is definitely a trigger to revive a really welcome step, but to Amit's point,
03:47I think the biggest problem with the Angel tax was not only the fact that you're paying
03:5230% of the money that you're raising, which you're raising from your equity.
03:56So technically you're paying tax via your equity, but more than that, the problem with
04:02Angel tax was that it was penalizing startup entrepreneurs from valuing their startup for
04:10its future value for what's potential, where, you know, the tax officer was looking at a
04:16fair market valuation basis, current asset, and most of the startups, you know, unlike,
04:22you know, Vinita here, you know, most of the startups are tech startups.
04:28We don't have assets.
04:29We have intellectual property as asset, you know, Amit will agree to this.
04:33So it was very difficult to get to that fair market valuation in the eyes of the tax inspector.
04:39And hence people were getting harassed, you know, through the cycle and then paying a
04:44delta of the tax on the money raised.
04:47So I think abolishing it is a great step.
04:50Startup entrepreneurs are not only going to, you know, have a breath of relief.
04:54I think Angel investors are just going to, you know, be more, I should say, risk taking
05:02on the startup entrepreneurs now, given that, you know, this was, this was, this was, this
05:06was also a declaration that it was a bad, you know, tax practice.
05:10And I sincerely hope that finance minister also clarifies, I don't know if they have
05:14already, whether this will impact the existing open books or, you know, at least startups
05:21who raised money between 2016 and 2024, will it still apply to them?
05:25I see, I hope that it gets clarified and no more startups get tax notices.
05:30By the way, we were one of the victims of, you know, startup tax back in 2016, 17, 18.
05:36And it was, it was quite a tyranny.
05:38Okay.
05:39So do you see, do you see, and follow up to Ashish here, I mean, we'll wait for that clarification,
05:43but typically such decisions are not made with retrospective effect, right?
05:47Because then, then you lay the parameter, you don't want to do anything with retrospective
05:50effect, good or bad.
05:52So even if it's good, you might not go back in time and try and fix things.
05:56But having said that, do you think, Ashish, that you're beginning to see the green shoots
06:00of Angel investing anyway coming back and will this then give it that impetus?
06:05100%.
06:06I think, I think one thing that will happen immediately is that re-domiciling of startups
06:13outside of the country who were just moving away because there was Angel tax, because
06:18there was a probability that, that, you know, people will get notices and then there's startup
06:23investors also start getting notices.
06:25They also come under scrutiny.
06:26I think this entire ripple effect, as soon as it ends, startups will stop re-domiciling
06:32out of India, just because they wanted to raise Angel money.
06:35And I personally think it's a big win because re-domiciling a company outside of India,
06:40just to raise Angel capital is a brain drain of a different kind and, you know, loss of
06:44GDP and revenue, and again, like ripple effects on the economy.
06:47In fact, tell me more about that, Amit Jain, and we've been seeing, you know, startup founders
06:54pop up suddenly in Dubai, everyone's favorite destination, people move lock, stock and barrel
06:59and start running their company from Dubai, Singapore, wherever, and this Angel tax might
07:04be some reason for it, enough reason to come home now and just give us an idea of the kind
07:10of stress this was creating also for the community.
07:14I think there are other programs also in UAE, et cetera, which promote startups to start
07:20from there.
07:21But I personally believe if your business is gonna be primarily in India, I think the
07:25best place to, you know, do business in India and registering company, you would be noticing
07:31now larger companies are trying to move back to India to list.
07:34In any case, it was not very fruitful for companies to go out and then come back.
07:39Now with this Angel tax getting sorted out, the people who would move out for this reason
07:43should definitely look at coming back.
07:45UAE, Dubai that you're talking about has a lot of incentives also on servers, office
07:51space, you know, a lot of stuff they're trying, they're all trying to create a hub there of
07:54technology, frankly.
07:55So people who should look at UAE as an option are the ones who are trying to maybe, you
08:02know, take those incentives and sell to the globe.
08:05But if your primary occupation is gonna be in India and business is gonna be in India,
08:10I would personally view this has to be done from India as this is a main place of operation.
08:15But it's important point.
08:17It's important point because now there is a global hunt for talent, for entrepreneurial
08:22talent as well.
08:23And India is competing.
08:25So we're just taking UAE as an example, but if those are the kind of incentives, let's
08:30talk about what more needs to be done to bring back the founders, avoid more founders departing
08:37and that kind of a brain drain happening.
08:40That question for Amit Jain.
08:41Look, my personal view is that you will have a lot of infra already built up in India and
08:47with the kind of startups coming in AI and space tech, as you notice now, I see no reason
08:53for people to move out.
08:55I'm personally a big believer of India and I've stayed back.
08:58I built the company here, never got it registered outside.
09:01In fact, all our foreign offices are subsidiaries of India.
09:05Everything consolidates back.
09:07My personal view is that more and more people are staying back.
09:10When I was passing out of IIT back then in 99, most of my batch went out.
09:16And now if you notice, hardly any percentage, very few percent point go out, less than 10.
09:21In my case, it was 90, 95% going out.
09:23So actually the talent is not stopping back.
09:26Salaries have significantly changed now for people to stay back.
09:31More and more startup ecosystem is evolved.
09:33So I personally don't see it as a big challenge that companies starting from India actually
09:37relocating to Dubai.
09:39It is just for the tax reasons, investors sometimes insist that, you know, form it here.
09:43A lot of companies get funded from Y Combinator who insists to register in America, for example.
09:49There's other reasons also which make the investments, the company domicile outside.
09:54But I personally think with the angel tax getting sorted out, there's no reason I personally
09:59believe that people would still look out for domiciling outside in my view.
10:04Vinita, your response to that point of, do you see people coming back, a ghar wapsi of sorts,
10:10or at least more, you know, investors not having to go.
10:14And also your view on the fact that TDS has been cut quite significantly for e-commerce
10:20down to 0.1%.
10:23Can you explain to us what the impact of that would be?
10:29Yeah, absolutely.
10:29So I think on the ghar wapsi piece, I think one of the biggest, yeah, one of the biggest
10:36impact that also we're going to see is the fact that over the last two to three budgets,
10:43the government has been decriminalizing a lot of these regulations.
10:48And today in the announcement, since you mentioned the topic of TDS, they also brought up the
10:53whole decriminalization of TDS delayed payments.
10:57I think, you know, founders in their entire journey, that 0 to 1 journey, a lot of times
11:03have these honest mistakes around regulatory findings on time that there are delays.
11:07So apart from the interest and penalties that the founders anyways are liable for,
11:12there is a risk of criminal action in India.
11:16And India is one of the only countries where for more than a lakh, you know, business-related
11:23reasons, there can be criminal prosecution.
11:26And I think one of, I mean, the government has been taking action there.
11:30And I'm very grateful that today another step was taken in that direction, where on
11:35delayed TDS payments, the criminalization has been abolished.
11:40So I think that entire just ease of doing business, which is a constant pain point for
11:48a lot of investors as well as entrepreneurs, I think that getting resolved with every budget
11:55is a big step.
11:57The other thing which Amit was in fact sharing with us in the beginning was that, you know,
12:02private capital gain tax, which was at 20% is now down to 12.5%.
12:08I think that's another big step because that at least reduces the gap between what the
12:14benefit of tax saving was with a UAE or a Singapore or a US where a lot of founders
12:21are now moving.
12:22And I think there would be a lot more incentive for them to consider staying back in India
12:28rather than moving out.
12:30So I do feel that this as well as the entire language of the government by abolishing angel
12:36tax, by decriminalizing a lot of these very basic kind of regulations, by talking about,
12:45you know, the 100 crore budget for the credit guarantee for MSMEs, I think the whole 1000
12:52crore fund for space tax, I think the language of the government is that, you know, a large
12:58part of employment, hopefully 5 to 10% over the next decade will come from startups.
13:04And that is why the government believes that for India's future, it's important to make
13:10sure that startups consider India as a very, very, you know, as probably the number one
13:16place to set up their business in the world.
13:19And incentivizing with not just PLIs, but also with a lot of very, very startup specific
13:26schemes, as well as provisions is going to be a big step.
13:30And angel investing, we're already seeing it had started growing because a lot of while
13:37foreign direct investment had gone down, a lot of the wealthy families, HNIs in India,
13:43who made a lot of money in the markets in the last 12 months have been looking at startups
13:48to invest.
13:48So this angel tax abolishing is going to make the floodgates open.
13:53And I think this, you know, early stage investing is going to get a boost of not just 20-30%.
13:58My sense is probably even more in the coming 12 to 18 months.
14:02Okay, that's an important point that the floodgates will open to angel investing.
14:07Before I take a break, I want a quick word from Amit Jain on the impact of long term
14:10capital gains tax for non equity asset classes being reduced to 12.5%.
14:16The impact for those who hold private equity in their company like yourself, what does that do?
14:23Well, now the rate has reduced significantly earlier, we had to pay 20.
14:28Now it's 12.5.
14:29It's same as public and private.
14:31While it has increased for public companies, but for private companies, it's a reduction.
14:35And it's a massive boost from our perspective.
14:37And for people who eventually hold shares in a private company and secondary movements
14:43come, I think it's a big, big relief, I'll be candid.
14:47This also, in turn, boosts more people to have investments here and then take secondaries,
14:53employees getting shares.
14:55So this does not apply to eSwap, just to be clear, it applies to equity share.
14:59Founders and partly paid shareholders of the company will benefit here.
15:04From my perspective, it's a big gain.
15:06Let's say if we do a pre-IP round in a private company,
15:09this will be a massive tax saving from our perspective as founders.
15:12Okay.
15:12So massive tax saving from Amit Jain's perspective and for founders.
15:19Huge boost to space technology as well and startups in that space.
15:23We'll take a very short break.
15:24We'll talk about all that.
15:25But we'll also talk about the other side of this.
15:28The reason why the government is giving all this encouragement to startups is so that
15:32jobs are created.
15:34Clearly, this time the government is being very clear of what they expect the private
15:39sector to do, whether it's internship, whether it's incentives in terms of new employers.
15:45How do you think this actually incentivizes startups in various verticals to hire more
15:52people?
15:54I think one thing that I would like to also point out is that whenever there is a startup
15:59scheme and whenever we talk about, let's say, Startup India that the Prime Minister launched
16:04back in 2016, we talk about tax holidays for the startup companies.
16:08And I think one thing that I've always wondered is, I'm sure Nita and Amit will agree, startups
16:14are not worried about tax.
16:15Startups are worried about income.
16:18Tax will come when there's going to be income and then profit on top of it.
16:22So I think some of the steps in today's budget, including injure tax, talking about internships,
16:29first job creation, I think these are just going to encourage every startup founder to
16:37look at these avenues where they can align with the government's mission and vision.
16:42And I'm sure that some of these are going to bloom into better policies and consecutive
16:48budgets year on.
16:51My view right now is only around that injure tax piece as well as the capital gains piece.
16:57The probability of founders and companies staying in India is also going to directly
17:04impact the job creation.
17:06So capital gains was actually a significant step, especially for the private companies.
17:11We see so many examples where founders and companies move outside the country before
17:17their exit event, which is, let's say, in line of sight, maybe three years out.
17:21And I think with this 12.5% capital gains, this is not going to happen.
17:27This is going to happen much less, which also is going to impact employment and job creation
17:33within the country, because we don't really need to go outside.
17:37Vineeta, your take on that, on how employment gets the boost, because now you have to also
17:42deliver the jobs.
17:44At the end of the day, all these incentives are because startups are the one who can create
17:48the jobs.
17:49And while all of that money was flowing into startups a few years ago, the argument often
17:54was, that's fine, but where are the jobs?
18:00I think I can talk about myself.
18:02We employ 4,000 people out of which 75% are women.
18:07Today we spoke about employment rates of women being in the range of 20% going up to 37%,
18:13including formal and informal.
18:15So I think I would say, just like me and Amit and Ashish over here, we are all creating
18:22now probably startups account for almost 10 lack jobs in India.
18:27So there is progress.
18:29And I feel that as long as the scheme that the government has launched around the contribution
18:35of PF for a month for employment provided for first jobbers, I think schemes do not
18:42have a lot of regulatory hassle.
18:44I think startups would be the first to avail of some of those benefits and deploy that
18:50into more job creation.
18:53And I think this is a massive boost for the next five years.
18:56I mean, what the finance minister said is that this is going to impact 4 crore young
19:02people.
19:03And I think India has this crisis of almost a crore people entering the workforce every
19:08year and then needing to be provided employment.
19:12So I think the whole idea of this scheme where there is a part contribution of Provident
19:19Fund or ESIC by the government, as well as those paid internship where the government
19:25pays the stipend.
19:25I think if the regulation and the way to get those benefits is not too bureaucratic and
19:34doesn't take us months of paperwork, I think we will definitely all be coming together
19:40to make that happen.
19:41Paid internship, 10% needs to come from the company.
19:44The rest comes from the government, including that one time payment of 6,000 rupees.
19:49Vinita, you talked about 4,000 people plus this internship coming in.
19:55If I were to ask you, do you feel incentivized to hire more right now after all of this?
20:00In real terms, does it translate for you?
20:02Because these are all big statements.
20:06Excellent.
20:06Everyone welcomes it.
20:08Would you hire more?
20:10We would probably consider this scheme while hiring, but hiring more not for the sake of
20:16it because I think my board is also going to be watching this interview, so I definitely
20:21don't want to hire for the sake of hiring because that doesn't do justice to either
20:25the company or the employees.
20:28Ashish wants to come in.
20:29Yeah, I think one very important piece is that I think in India, as Vinita said, one
20:35crore plus people are joining the workforce every year.
20:38And while we keep hearing about there is a dearth of employment, I think one important
20:44part is that there is a bigger issue, which is employability in India.
20:48And that is a ripple effect of lack of economic prosperity, education avenues, etc.
20:53I think this internship, the paid internship step by government is an extremely welcome
20:58step.
20:58And if availing this is not too bureaucratic, if it comes with ease, I can bet that every
21:06startup founder of all types and kinds in every domain will be incentivized to give
21:12internships to people, which in turn is going to make people more employable at large, even
21:18if they are not absorbed at the same company.
21:21Amit, your last word on employment and employability.
21:25Both sides of it.
21:26I mean, employability, all right, the skilling, you know, courses and policy and all of that
21:30is in place.
21:31But does this really allow you to employ more?
21:36I think every startup will have a demand of its own.
21:40Having skilled resources available obviously helps us.
21:43So we have been expanding 70% year over year.
21:46And we directly employ around 6,000 and indirectly employ around 1,50,000.
21:52So the reality is that, you know, each startup has a big impact, not only through direct,
21:57but indirect employment also, like we have insurance agents, finance agents working on
22:02our platform.
22:03Similarly, most of the startups have created a lot of gig work, if you realize, right.
22:06And it's not just direct employment that gets impacted.
22:09My personal view is that government is super focused on innovation, research and manufacturing,
22:15if you notice in the budget.
22:17So manufacturing is not something that, you know, is being done only by established giants.
22:22Now, startups have gone into manufacturing.
22:25All startups started with distribution.
22:27Then they went into value chain upwards to, you know, start manufacturing certain parts
22:33of the value chain.
22:34And that's how marketplaces are evolving into transaction ensuring quality.
22:38You will see a lot of startups actually entering this manufacturing world, creating a world
22:43of employment is my view, especially in commodity items.
22:47A lot of, you know, agri-tech founders have come where food processing is happening.
22:52A lot of battery manufacturing startups have come.
22:54You will see a lot of disruption happening through this.
22:58So I personally believe that the budget supports for employment.
23:02They're laying out infrastructure of India, which is transportation, roads, etc.
23:06That eases up the whole economy in a way and makes towns more connected, which enables
23:12manufacturing at various locations, thereby enabling employment.
23:16Lastly, I think government is aiming for an inclusive mix of women and men in the workforce
23:22with a clear focus on women-led development in this budget of 3 lakh crore being, you
23:28know, kind of allocated for women-led schemes only, right?
23:32I think all are great signs, inclusive workforce, creating more jobs, enabling infrastructure
23:38to enable that and manufacturing to enable that.
23:40I think all kind of falls in place in my view.
23:43Okay, so it all falls into place.
23:45We'll wait and see whether the actual jobs come in as well.
23:48But yeah, a good day for startups who have not really been on top of the list as far
23:53as the last few budgets have been concerned.
23:56The angel tax coming off is a huge, huge relief, if nothing else.
24:00Thank you so much to all of you for joining us today to decode what the budget has meant
24:05for the startup space.
24:07And to all of our viewers, thank you for joining us as well.
24:09We'll end the show here, but stay tuned.
24:11A lot more coming up on the other side on NDTV Profit.