Budget 2025: Tech industry pushes for deep-tech fund, safe harbour tweaks

India's apex IT industry body Nasscom has batted for tweaks in safe harbour rules and widening the scope for utilisation of SEZ reinvestment reserves in its Budget wishlist, while advocating for creation of a central deeptech fund to bolster startup ecosystem in India.

Creation of a grant framework for the deeptech ecosystem, and making the deferment of the time of payment of tax on Employee Stock Option Plan available to employees of all DPIIT-recognized startups also tops the Budget expectations of the industry.

The Union Budget for financial year 2025-26 is scheduled to be presented in Parliament by Finance Minister Nirmala Sitharaman on February 1, 2025.

For the USD 250 billion export-led Indian IT industry, the Budget comes amid continued global macro headwinds, geopolitical risks, and growing unease about possibility of sudden policy and tariff moves by the US, where President Donald Trump has promised to script a new, glorious chapter for America with his headline-grabbing second-term.

Issues under transfer-pricing regime, expanding the scope for utilisation of SEZ reinvestment reserve for tech companies, as well as measures to promote startup in India figure high on Nasscom's budget expectations.

Among the key asks is also making deferment of the time of payment of tax on Employee Stock Option Plan (ESOP) available to the employees of more startups.

"The deferment - even if you look at only DPIIT-registered startups - is actually available only to about 2.5 per cent of these startups.

"While the DPIIT has roughly around 1.43 lakh startups registered on its portal, of which 3,600 odd are certified by the inter-ministerial board, and only these startups can get this benefit," Ashish Aggarwal, Vice President and Head of Public Policy at Nasscom told PTI.

Given that the employee is required to pay full tax and there is only a deferment of the time of payment, the benefit should be available to all DPIIT recognised start-ups, not limited to 3,605 start-ups who have obtained IMB certificate under IT Act, according to Aggarwal.

"In fact, there is a merit in going beyond," he said.

Along with making the deferment available for all DPIIT recognised startups, safeguards can be added to say that eligible ESOPs will be available only to employees of DPIIT registered start-ups, and that ESOPs will be offered only to Indian resident taxpayers.

"ESOP schemes should be uniform for all employees so that you don't create some scheme which is uniquely tailored for certain employees," he said.

Nasscom is also batting for measures to strengthen availability of 'patient capital' (long-term capital) for deeptech startups in India.

According to the industry body, the government should create a dedicated deeptech fund (in the form of fund-of-funds) structured with flexibility for longer gestation (10 years with extensions). The fund's structure may incorporate provisions for matching capital to encourage greater venture investment in the sector.

This was also proposed in draft National DeepTech Startup (NDTSP) 2023.

Another ask pertains to creation of a grant framework for the deeptech ecosystem.

"A common grant framework should be established across government ministries, through a two-tiered funding approach - Initial Proof of Concept grant of at least Rs two crore to validate core technologies; tested Prototype grant of minimum Rs 3 crore to support market validation and early commercialisation," NASSCOM said as part of its Budget recommendations.

Further, specific infrastructure grants - in the form of access to labs and testing facilities for the high-cost areas like Space, Semiconductors, AI, Clean Energy, etc. should be explored, it says.

The industry asserts that since Global Capability Centres (captive centres) only provide services to their own group companies/parent companies and are normally based on a cost-plus model, the safe harbour rules should be available to all the GCCs and the cap on turnover (up to Rs 200 crore) and the criterion of bearing insignificant risk needs to be dispensed with.

"The safe harbour regime should be made available for all related party entities. Given the competitive nature of industry, the rate of profit margins are not observed to be higher merely because a company is bigger in terms of annual revenues. Therefore, abolish or significantly increase the eligibility threshold for SHR," according to Nasscom.

Further, the Safe Harbour margin rates - though reduced in 2017 are "still very high" and needs to be reduced. The industry is also pinning its hopes on a simpler regime and fewer categories.

So far as issues impacting the tech industry goes, Nasscom has recommended that the government should expand the scope for utilisation of SEZ reinvestment reserve to include operating expenses incurred on leasing of computers/ laptops, using cloud infrastructure, buying software; capital investment in building infrastructure and expenses incurred on new employees such as salary cost, training costs.