India’s Finance Minister Nirmala Sitharaman presented the Interim Budget 2024-25 on February 1 this year. While the broader focus on growth was welcomed, some sectors of India Inc. were disappointed as their demands were overlooked.
The Interim Budget proved to be a mixed bag.
Technology: Fuel for Growth
The Budget’s emphasis on digitizing transactions for government programs, and the allocation of more than Rs 2.7 lakh crore for this are two of the Interim Budget’s most noteworthy features. This is largely owing to the fact that going forward, it would enable tech companies to develop alternative payment methods, and address other growth parameters.
This is in continuation with the emphasis on digitization made in the Union Budget 2023–24, when the government provided more than twice as much funding for digital payments (Rs 2,137 crore) than it did in the previous year FY 2022-2023 (Rs 1,044 crore).
With the announcement of the plan to construct three Centres of Excellence (CoEs) in Artificial Intelligence (AI), the Union Budget of 2023 significantly boosted support for this technology. It was then said that the centres would be established in eminent universities in the country, and would showcase partnerships between these educational establishments and top-tier companies. These centres’ primary objectives would be to conduct research and create useful AI applications for sustainable urban planning, healthcare, and agriculture.
In the Interim Budget (FY 2024–2025), Rs 255 crore was allocated to this end.
Deep Technology: In Aid of The Defence Frontier
The announcement made by Finance Minister Nirmala Sitharaman regarding the development and use of deep technology (deeptech) for India’s security- defence forces- in addition to the Rs 1-lakh-crore surplus for interest-free loans with a 50-year term – is indicative of the government’s recognition and emphasis on the increasing importance of the role of technology in strengthening the nation’s defences.
In this context, ‘deep tech’ refers to the application of technology – such as robots, AI and Machine Learning – in a variety of fields, including defence. The application of deep tech has transformed military operations across the globe in the last decade. The military forces of countries like the United States, Israel, China, and Germany now have considerably more capability owing to the use of this technology.
India’s defence budget is set at Rs 6.21 lakh crore for 2024–2025, and Sitharaman stated that a new programme will be introduced to boost deep-tech capabilities for defence purposes.
Regarding other new technologies, the government announced that it will be allocating more than twice the money for the development of the semiconductor and display manufacturing ecosystem. The goal of making India a semiconductor powerhouse was reiterated by the government in the Interim Budget. The government has once again allotted Rs 6,903 crore in Budget 2024–25, following an unplanned allocation of Rs 3,000 crore in the Union Budget 2023–24. The ecosystems supporting the production of semiconductors and displays will benefit from this allotted sum. In December 2021, the government had unveiled an incentive programme of $10 billion (about Rs 76,000 crore) for the semiconductor and display manufacturing industry.
Startups: Tax Benefits
The extension of the tax holiday for startups incorporated until March 31, 2025 was the sole item from the Interim Budget that directly related to the startup sector. This was extended from March 2023 to March 2024 last year. Startups that meet the eligibility requirements can benefit from a tax vacation for three of the seven years following their incorporation date, as long as their annual revenue stays within the required limit in each of the preceding financial years.
Conditions like the startup’s incorporation as a private limited company, registration as a partnership firm, or formation as a limited liability partnership are among the eligibility requirements for recognition as a startup. A company can be considered a startup for ten years after it is incorporated. It should have the potential to create income and jobs, and it should aim for innovation and the improvement of current products, services, and processes. Its turnover in any of the previous fiscal years has to be less than Rs 100 crore.
The threshold is restrictive, so only a small percentage of Indian entrepreneurs qualify for the tax exemption. However, the decision to prolong the tax holiday was welcomed as it is intended to encourage more Indians to become entrepreneurs by making it easier to start new businesses. After surging till 2021, the rate of new startup creation has decelerated in the last several years.
Under the Mudra plan, a Government of India initiative that allows a small debtor to borrow loans up to Rs 10 lakh for non-farm income-producing activities from banks, microfinance institutions (MFIs), and Non-Banking Financial Companies (NBFCs), Sitharaman stated that the government would continue to extend more loans to women entrepreneurs. Collateral is typically not required for bank loans up to Rs 10 lakh granted under the Micro Small Enterprises category.
One aspect of startup-specific plans that was mentioned in the Interim Budget was the use of homegrown deeptech innovations in defence. The drone technology industry in India is expected to benefit greatly from this, since it has been pursuing public-private partnerships and greater access to government contracts for deeptech defence solutions.
Some Pleas Unanswered
The country’s crypto sector has been asking the government in several ways – including social media- to lower cryptocurrency taxes. Under Section 115BBH, gains from trading cryptocurrency assets are subject to a 30% tax rate plus a 4% cess. Also, Section 194S stipulates that starting on July 1, 2022, a 1% Tax Deduction at Source (TDS) will be applied to all transfers of cryptocurrency assets.
However, Sitharaman stated that no tax changes are being implemented at this time, despite the outrage.
Similarly, there were no steps taken in the Interim Budget to address regulatory issues with NBFCs. This uncertainty is expected to affect investor mood, and the NBFC industry’s overall growth. Several other initiatives regarding the fintech segment were absent.
The Bottomline
In conclusion, the Interim Budget 2024–25 underscores the government’s commitment to steering India towards becoming a developed nation by 2047. With a strategic emphasis on inclusive growth, economic stability, and sector-specific advancements, the budget aims to fortify India’s position on the global stage. The continued focus on digitization, deep technology in defense, and support for startups highlights the government’s recognition of technology’s pivotal role in driving growth and innovation. Although certain sectors may have been left wanting, the overall direction of the budget aligns with the broader vision of environmental sustainability and a progressive tax regime. As India navigates its path towards development, the Interim Budget lays down a foundation that balances immediate needs with long-term aspirations.
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Written by: AARTIE RAU
