Comparative Analysis of the 2024 and 2019 Union Budgets for Startups: A Business Lawyer’s Perspective

The Union Budgets of 2019 and 2024 represent pivotal moments for India’s startup ecosystem, reflecting the government’s evolving approach to fostering innovation and entrepreneurship. Building on the momentum of the 2019 budget, which Thinking Legal analysed in their article titled?“Budget 2019: Incentives for Start-ups,”, this comparative analysis delves into the key announcements of both the budgets, and examines their implications for startups.

Overview of the 2019 Union Budget

In July 2019, Finance Minister Nirmala Sitharaman presented a budget that aimed to bolster the startup ecosystem amidst a backdrop of economic challenges. Key announcements included:

• Angel Tax Relief: The government proposed easing the angel tax burden on startups, a significant concern for entrepreneurs seeking funding.
• Tax Holiday Extension: Startups were granted an extension of the tax holiday from three to five years, allowing them to retain more capital during their formative years.
• Seed Fund Initiative: The budget announced a ?20,000 crore seed fund to support early-stage ventures, providing crucial financial backing for startups.
• Support for Women Entrepreneurs: The budget included provisions for collateral-free loans of up to ?50 lakh for women entrepreneurs, promoting gender diversity in the startup space.

Vaneesa Agrawal, a?business lawyer?and founder of Thinking Legal business law firm, commented on the 2019 budget: “The 2019 Union Budget introduced significant changes that would enable startups to focus on growth rather than compliance, allowing them to navigate the complexities of business law more effectively.”

In her article “Budget 2019: Incentives for Start-ups,” Vaneesa Agrawal highlighted several key points:

• Startups incorporated between April 1, 2016, and March 31, 2021, are eligible for a 100% tax deduction on profits for 3 consecutive years out of 7 years.
• Angel tax provisions have been relaxed for startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT).
• Startups can now avail tax exemption on investments above Fair Market Value (FMV) if the investor has a minimum net worth of ?2 crore or an average income of ?25 lakh in the preceding 3 financial years.
• The definition of startups has been expanded to include companies with an annual turnover of up to ?100 crore (previously ?25 crore).

Overview of the 2024 Union Budget

Fast forward to July 2024, the Union Budget presented by Finance Minister Nirmala Sitharaman marked a significant shift in policy direction, with a strong focus on innovation and long-term growth:

• Abolition of Angel Tax: One of the most notable announcements was the complete abolition of the angel tax on all asset classes.
• Venture Capital Fund for Space Technology: The government proposed the establishment of a ?1,000 crore venture capital fund to promote investments in space technology.
• E-commerce Export Hubs: The budget outlined plans to set up e-commerce export hubs to facilitate access to international markets for micro, small, and medium enterprises (MSMEs) and traditional artisans.
• Credit Guarantee Scheme: A new credit guarantee scheme was introduced to facilitate term loans for MSMEs to purchase machinery and equipment without collateral.

The 2024 budget’s abolition of the angel tax, as pointed out by various business lawyers, is expected to significantly reduce compliance burdens for startups, allowing them to focus on scaling their operations.

“This change will not only benefit startups but also enhance the attractiveness of India as a destination for foreign investment.”

- Vaneesa Agrawal, a business lawyer

Comparative Analysis: 2019 vs. 2024

Policy Focus

The 2019 budget primarily focused on providing immediate support to startups through tax holidays and seed funding. In contrast, the 2024 budget emphasises creating a sustainable ecosystem for growth, with initiatives like the abolition of the angel tax and the establishment of a venture capital fund.

Vaneesa Agrawal, drawing on her extensive experience as a business lawyer, observed that the 2024 budget represents a positive shift in the government’s approach to supporting startups.

“While the 2019 budget laid the groundwork, the latest measures demonstrate a more comprehensive understanding of the startup ecosystem’s needs.”

- Vaneesa Agrawal

Impact on Early-Stage Startups

While the 2019 budget aimed to support startups in their early stages, the 2024 budget seeks to create a more robust framework for scaling operations and attracting investments. This shift reflects a recognition of the need for startups to evolve beyond initial funding stages.

“As a business lawyer, I’ve seen firsthand how these policy changes impact startups at different stages of growth,” Vaneesa Agrawal stated. “The 2024 budget’s focus on scaling and attracting investments will be particularly beneficial for startups looking to expand their operations.”

Legal and Compliance Changes

The 2019 budget introduced measures to simplify compliance for startups, while the 2024 budget takes significant steps to eliminate burdensome regulations, particularly the angel tax. This change is expected to enhance the overall business environment for startups, making it easier for them to navigate legal complexities.

Vaneesa Agrawal emphasised, “The simplification of compliance procedures is a turning point. It allows startups to allocate more resources to?innovation and growth, rather than getting bogged down in regulatory hurdles.”

Analysis of the Impact on Startups

The policy shifts between the 2019 and 2024 Union Budgets have had a profound impact on startups at different growth stages. For early-stage ventures, the 2019 budget’s seed fund and tax holiday offered crucial breathing room. As Vaneesa Agrawal notes, these measures allowed startups to focus on growth rather than immediate compliance.

The venture capital fund for space technology has opened up new avenues for innovation-driven startups. Vaneesa Agrawal emphasises that this shift towards scaling and investment attraction will be particularly beneficial for startups looking to expand their operations. Essentially, while 2019 provided a foundation, 2024 has equipped startups with the tools to build sustainable and?scalable businesses.

Conclusion

The comparative analysis of the 2019 and 2024 Union Budgets highlights a significant evolution in the Indian startup ecosystem. From initial relief measures to transformative policies aimed at fostering innovation, the government’s approach reflects a commitment to supporting entrepreneurs.