Budget 2025 for Startups and MSMEs: Confusions with Expectations for Exemptions

The Union Budget 2025 has been a significant event for the Indian economy, especially for startups and Micro, Small, and Medium Enterprises (MSMEs). Finance Minister Nirmala Sitharaman's speech was eagerly awaited by entrepreneurs and business owners who were hoping for measures that would ease their financial burdens and promote growth. While the budget introduced several initiatives aimed at supporting these sectors, it also left many with questions and unmet expectations regarding exemptions and tax benefits.

A Promising Start: Key Measures for Startups and MSMEs

In an effort to foster a more conducive environment for startups and MSMEs, the budget introduced several key measures:

1. Enhanced Credit Guarantee Cover: One of the most notable announcements was the enhancement of the credit guarantee cover for MSMEs. The cover has been doubled from Rs 5 crore to Rs 10 crore, which is expected to unlock an additional Rs 1.5 lakh crore in credit over the next five years. For startups, the cover has been increased from Rs 10 crore to Rs 20 crore, with a reduced guarantee fee of 1% for loans in 27 focus sectors. This move aims to address the challenges of access to finance, a critical issue for many small businesses.
2. Customised Credit Cards for Micro Enterprises: To further support micro enterprises, the government announced the introduction of customised credit cards with a limit of Rs 5 lakh for those registered on the Udyam portal. This initiative is expected to provide much-needed financial flexibility to micro enterprises. The government plans to issue 10 lakh such cards in the first year.
3. Technological Upgrades and Better Access to Capital: Recognizing the importance of technology in driving business efficiency, the budget emphasized technological upgrades for MSMEs. Better access to capital was also highlighted, with the aim of supporting the growth and competitiveness of small businesses.
4. Investment and Turnover Limits: The budget also addressed the classification criteria for MSMEs. The investment limit for MSME classification has been increased 2.5 times, and the turnover limits have been doubled. This move is expected to give MSMEs the confidence to grow and create more job opportunities without the fear of losing their MSME status.

The Union Budget 2025, presented by Finance Minister Nirmala Sitharaman, has indeed sparked a lot of excitement among startups, venture capitalists (VCs), and deeptech companies2. Here are some key highlights:

Tax Breaks for Startups

• Angel Tax Abolition: The budget has abolished angel tax, which is expected to encourage more investments in startups.
• Simplified Tax Structure: The government has simplified the tax structure to make it easier for startups to comply with tax regulations.
• Tax Holidays: Startups can now benefit from extended tax holidays to help them grow without the burden of heavy taxes.

Deeptech Funds

• DeepTech Fund of Funds: A dedicated fund of funds has been set up to support deeptech startups. This fund aims to provide long-term capital and encourage venture investments in high-risk, high-reward areas like AI, robotics, and clean energy2.
• Fellowships: Around 10,000 fellowships will be provided in IITs and IISc for tech research over the next five years.

Growth Boost

• Increased Funding: The budget includes an additional allocation of ?20,000 crores to the Small Industries Development Bank of India (SIDBI) Fund of Funds for Startups.
• Infrastructure Development: The government is focusing on developing innovation hubs, incubators, and accelerators to provide startups with access to state-of-the-art technology and mentorship.
• Policy Reforms: The budget includes key reforms aimed at boosting the startup ecosystem, such as expanded safe harbour rules and streamlined transfer pricing assessments.

These measures are expected to create a more conducive environment for startups and deeptech companies, fostering innovation and driving economic growth in India.

Confusions and Unmet Expectations

Despite these positive measures, there have been areas of confusion and unmet expectations among startups and MSMEs. Business owners were particularly hoping for more clarity and significant tax exemptions, but the budget did not meet these expectations:

1. Tax Exemptions: The budget did not provide substantial changes in tax exemptions, which was a major point of anticipation for many. Startups and MSMEs were expecting more relief in this area, especially given the financial challenges posed by the pandemic. The absence of significant tax exemptions has left many business owners disappointed.
2. Old vs. New Tax Regime: The introduction of the new tax regime with reduced tax rates and fewer exemptions has created confusion among taxpayers. Many businesses are still trying to understand the implications of choosing between the old and new tax regimes. The lack of clarity on which regime would be more beneficial in the long run has added to the confusion.
3. Deductions and Exemptions: The budget did not address the demand for increased deductions under Section 80C and Section 80D, which are crucial for investments and health insurance premiums. This has left many businesses feeling that their financial burdens have not been adequately addressed, as they were hoping for more substantial support in these areas.
4. Regulatory Reforms: While the budget announced a high-level committee for regulatory reforms, there is still uncertainty about the timeline and impact of these reforms on the ease of doing business. Business owners are concerned about how quickly and effectively these reforms will be implemented.

Conclusion

The Union Budget 2025 has introduced several measures aimed at supporting the growth of startups and MSMEs in India. However, the lack of clarity on tax exemptions and the confusion surrounding the new tax regime have left many business owners with unmet expectations. Moving forward, it will be crucial for the government to address these concerns and provide more detailed guidance to ensure that startups and MSMEs can fully benefit from the budgetary provisions.

As the dust settles on the budget announcements, the business community will be closely watching how these measures are implemented and whether additional clarifications or amendments are introduced. The journey ahead will be one of adaptation and resilience, as startups and MSMEs navigate the evolving economic landscape.