New Delhi: With the Union Budget 2025-26 around the corner, industry leaders and experts across sectors have voiced their expectations for reforms to boost the startup ecosystem and address longstanding challenges faced by Micro, Small, and Medium Enterprises (MSMEs).
From tax reforms to enhanced credit support, here’s what the experts have to say.
Reducing Tax Burden for MSMEs
Vinumon S, Founder and CEO of Thence, emphasized the need to alleviate cash flow issues for MSMEs by addressing excessive tax deductions and GST filing processes. Highlighting the current 10 per cent TDS rate as disproportionate to the profit margins of most MSMEs, he proposed reducing the default TDS slab to 4-5 per cent and reserving the 10 per cent bracket for firms with income tax exceeding 10 per cent of revenue over the past three years.
“Refunds often take over a year to process, creating cash flow constraints,” Vinumon explained. Additionally, he called for a system allowing clients to directly pay GST dues to tax authorities, easing the financial burden on service providers. “The MSME Samadhan framework also needs to ensure faster case closures, preferably within six months, to address payment disputes effectively,” he added.
Supporting Startups with Tax Reforms and Incentives
Meetul B Patel, President of Entrepreneurship & Government Digital Transformation at Wadhwani Foundation, emphasized scaling initiatives for startups and SMEs. He said, “The Budget must build on existing foundational support and focus on operational success to achieve the goals of Viksit Bharat 2047.” Patel stressed the importance of enabling capabilities, expert networks, and market access for startups, underscoring the role of scalable technology platforms in driving economic growth.
Rahul Charkha, Partner at Economic Laws Practice, highlighted the trend of Indian startups engaging in reverse flipping to list shares on Indian stock exchanges. “Peppery.com and Groww have already redomiciled, but the capital gains tax on share swaps, ranging from 12.5 per cent to 35 per cent, remains a challenge. The Budget could address this by making such transactions tax-neutral,” he noted.
Akshat Pande, Managing Partner at Alpha Partners, pointed to the need for simplified capital gains tax structures to incentivize investments in early-stage startups. “Tax relief in this area could provide a strong boost to the entrepreneurial ecosystem,” he remarked.
Upskilling and Financial Support for MSMEs
Akshat Pande also underscored the urgent need for upskilling in the MSME sector, which currently upskills only 10 per cent of its workforce compared to 60-80 per cent in Western economies. He advocated for substantial budget allocations, tax breaks, and subsidies to enhance workforce competitiveness.
“Schemes like the Partial Credit Guarantee Scheme (PCGS) and Emergency Credit Line Guarantee Scheme (ECLGS) should be made more accessible,” Pande said, while also recommending an extension of NPA classification from 90 days to 180 days to ease debt pressures on MSME owners. He further called for tax incentives to develop EV charging infrastructure and simplify GST slabs for EV manufacturing.
Simplifying Regulatory Frameworks
Ravi Shah, Partner at Cyril Amarchand Mangaldas, highlighted the need for meaningful reforms to simplify compliance and promote innovation. “Streamlined processes for overseas investments and targeted incentives for high-growth industries like AI, advanced manufacturing, and life sciences could position India as a global startup hub,” he remarked. Shah also advocated for enhanced R&D tax benefits and skill development initiatives.
Similarly, Rahul Hingmire, Managing Partner at Vis Legis Law Practice, called for a unified compliance portal for tax filings and regulatory obligations. “Reducing penalties for first-time compliance errors and expanding pre-pack insolvency frameworks would encourage MSMEs and startups to operate more confidently,” he said.
Addressing Liquidity and Credit Gaps
Nikunj Bhatnagar, Associate at SKV Law Offices, pointed to structural inefficiencies in the GST framework, urging the government to shift GST liabilities to buyers to ease liquidity constraints for MSMEs. “Expanding Priority Sector Lending (PSL) to include renewable energy, women-led enterprises, and digital infrastructure would also be a game-changer,” he added.
Saurabh Sharma, Partner at Juris Corp, highlighted the need for simplified tax norms and enhanced provisions for the Gift City to attract investment and foster innovation in the startup ecosystem. “EdTech startups, in particular, have faced significant challenges recently. Targeted reforms could drive their recovery and growth,” he stated.
In addition, Sharma called for increasing the upper limit for angel tax exemptions, which would encourage greater investment in innovative startups. “This is crucial for ensuring the sustained growth of high-potential ventures,” he emphasized.
Balanced Approach for Inclusive Growth
Alay Razvi, Managing Partner at Accord Juris, cautioned against policies favouring larger enterprises over traditional MSMEs, particularly in rural and semi-urban areas. “A balanced approach is essential to ensure inclusive growth across sectors,” Razvi noted, adding that effective implementation of schemes would be crucial.
Experts also stressed the importance of ensuring financial literacy programs reach underserved regions, enabling MSMEs to better understand and utilize government schemes. “Capacity building and awareness campaigns are just as important as policy reforms,” Razvi concluded.
Focus on MSMEs and Digital Security
Rajarshi Bhattacharyya, Co-Founder, Chairman, and Managing Director of ProcessIT Global, highlighted the need for policies that promote MSME growth, emphasizing their role as the foundation of India’s economy. “These organizations should have easy access to credit from financial institutions and benefit from reduced interest rates on loans. The complexities of providing personal collateral should also be simplified,” he said.
Bhattacharyya also underlined the importance of skill development and entrepreneurship to empower MSMEs. “In today’s interconnected digital landscape, cybersecurity and data privacy are key areas. The government should allocate significant funds to develop strong cybersecurity infrastructure and promote best practices across sectors like Government/PSUs, Healthcare, and Financial Organizations,” he explained. He further advocated for investments in R&D, cutting-edge technologies, and security measures while enhancing skill development in these domains.
Expectations for the Future
Experts universally agree that the Union Budget 2025-26 has the potential to address critical challenges faced by MSMEs and startups. With reforms aimed at simplifying compliance, enhancing credit access, and promoting innovation, the government could provide a significant boost to India’s entrepreneurial landscape, fostering sustainable growth and global competitiveness.
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