Investors and startup executives are calling for extending the period for an entity to be recognised as a startup from 10 to 15 years for deep-tech companies.

Illustration: Dominic Xavier/Rediff

India’s venture capital industry and startup ecosystem are asking the government for regulatory relief in the Budget, arguing that policy changes could unlock billions of dollars in domestic capital for startups and position the country as a leader in emerging technologies.

Investors and startup executives are calling for extending the period for an entity to be recognised as a startup from 10 to 15 years for deep-tech companies, rationalising taxes on alternative investment funds (AIFs), and reduced goods and services tax (GST) on education-technology (edtech) platforms.

The demands come as fundraising activity hits multi-year lows, with venture investors seeking counter-cyclical government support to maintain deal flow.

There is also a need for the regulatory framework to keep pace with the capital-intensive needs of sectors like semiconductors, space technology, and artificial intelligence – areas where the government has ambitions on self-reliance.

Deep-tech capital access

Anirudh A Damani, managing partner, Artha Venture Fund, said the deep-tech ecosystem’s core expectation was policy alignment with India’s long-term self-reliance ambition.

Sectors like semiconductors and space technology operate on extended innovation and capital cycles, requiring policy frameworks that reflect that reality.

A step would be extending the Department for Promotion of Industry and Internal Trade’s (DPIIT) startup recognition from 10 years to at least 15 years for deep-tech companies.

Once companies lose DPIIT recognition, they become ineligible for investment from Category I alternative investment funds, angel funds, and government-backed platforms.

"That effectively blocks them out of domestic institutional capital at the exact stage when they are becoming commercially relevant."

Long-term capital pools

Gopal Jain, managing director and CEO, Gaja Alternative Asset Management, said India needed deeper pools of long-term capital for startups to scale up in a sustainable manner.

Alternative investment funds (AIFs) have the potential to grow from about Rs 13.5 trillion today to nearly Rs 100 trillion over the next decade, he said.

"Deeper participation by domestic institutions and long-term pools of capital can meaningfully scale private markets," he said.

Electric vehicles: Incentivising domestic manufacture

Kunal Khattar, founding partner, AdvatEdge Partners, said India must choose between being an assembler or being a global hub for electric-vehicle technology.

Beyond capital subsidies, the country needs a policy push for micro-factories and component localisation focused on core strengths.

The Budget should incentivise domestic manufacturing of magnet-free motors and power electronics to insulate Indian automakers from global supply-chain shocks, Khattar said.

While India’s first phase of electric-vehicle adoption was powered by purchase subsidies like Faster Adoption and Manufacturing of Electric (And Hybrid) Vehicles, the next phase requires a structural shift in how the government views asset lifecycles, Khattar said.

The Budget should catalyse a secondary market ecosystem.

Currently, the absence of standardised battery health certification and resale benchmarks creates a valuation gap, leading to higher interest rates and lower loan-to-value ratios from lenders.

Education technology

Players in the education-technology (edtech) sector are calling for tax exemption, innovation-linked incentives, and public-private partnerships to accelerate digital learning adoption.

Anuj Vishwakarma, CEO (higher education programs), upGrad, said the country’s tax framework should recognise skilling as an investment.

Sumeet Mehta, CEO and co-founder, LEAD Group, said he hoped to see the government take a more proactive role in supporting the edtech ecosystem by removing GST on educational services.

Edtech platforms suggest reducing GST on digital tools, infrastructure, and content for schools from 18 per cent to a lower tax bracket.

Rajeev Tiwari, founder, chief financial officer and chief product officer, STEMROBO, said the sector would benefit from enhanced credit support and incentives for impact-driven startups.

"The Budget could introduce innovation-linked incentives for ed-tech platforms working in priority areas such as AI-enabled learning, teacher training, foundational literacy, and skill-based education. Policies that support pilot-to-scale pathways, where proven solutions can be adopted by government schools more efficiently, would significantly strengthen the ecosystem."

Fintech

Fintech companies and technology-service providers have called for financial incentives toward modernising legacy systems, funding for research and development projects, and innovation-linked tax benefits.

"Time-bound fiscal incentives, such as accelerated depreciation or targeted capital expenditure support, can help banks modernise core processing, digital experiences, and fraud and risk platforms in a responsible and phased manner," said Ramki Gaddipati, CEO, APAC, and Global chief technology officer, Zeta.

Jitin Bhasin, founder and CEO, SaveIN, a health care fintech startup, said as India scaled up to being a $5 trillion economy, the Budget presented a critical window to catalyse domestic consumption and strengthen the startup ecosystem.

"We hope to see a rationalisation of long-term capital gains tax to bring parity between unlisted startup shares and listed equities, which is essential to encourage domestic investors to back Indian innovation over the long haul," Bhasin said.

To drive the ease of doing business for consumer-facing startups, simplifying the GST framework for financial services and expanding credit guarantee schemes will be critical, Bhasin said.

Software industry

Ravi Kumar, CEO, Cubastion, a digital transformation consulting firm, said this year’s Budget could help the industry scale up from pilot projects to full-blown deliveries.

Support for AI adoption is one major expectation, Kumar said. Startups and software companies need ease of access to computing resources, guidelines on data use in the cloud, and factors that will help them develop AI solutions that address problems.

"We urge the government to support those building valuable, scalable solutions for businesses and the government. With sustained policy support, the Indian software industry can provide high-quality employment, go up the value chain, and contribute more to India’s digital evolution," Kumar said.

Employee stock options

Rachit Chawla, CEO and co-founder, Finway Accelerator, said employee stock ownership plans in India were viewed as a tax burden rather than a wealth-building tool.

When employees exercise their options, they are taxed before receiving any money.

This creates cash-flow concerns, particularly for early-stage startups where exits are many years away.

Employees must pay taxes from personal savings on shares they cannot sell.

The government has allowed some employees to delay paying tax on stock options, but benefits are limited and apply only to specific startups that meet certain strict rules such as age, turnover and certification requirements.

This means only a small number of companies and employees can benefit, Chawla said.

The startup ecosystem is expecting reforms, Chawla said. First, employees should only pay tax upon liquidity, such as during an initial public offering, buyback or acquisition.

Second, tax benefits should apply to a broader set of startups.

Third, if the government simplifies how stock option shares are valued and taxes them as long-term investments, the system would be easier and fair for everyone.

Key Points

• VC industry and startup ecosystem are asking the government for regulatory relief in the Budget

• Edtech platforms suggest reducing GST on digital tools

• The startup ecosystem is expecting reforms

• Union Budget 2026

Feature Presentation: Aslam Hunani/Rediff