Fintech Budget wishlist: Simplified tax structures, regulatory clarity

Fintech players have called for a lower TDS for startups to ease working capital challenges

The fintech industry, which has been caught between the Reserve Bank of India’s (RBI’s) higher scrutiny and a severe funding winter, is looking at Budget 2025 with hope.

The industry is seeking a favourable tax framework for startups, along with exemption and incentives to reduce their capital costs.

Players that Business Standard spoke to said they expect better clarity on guidelines by regulators such as the RBI, the Securities and Exchange Board of India (Sebi) and the Insurance Regulatory and Development Authority of India (Irdai), among others. 

Fintech players have called for a lower tax deducted at source (TDS) for startups to ease working capital challenges.

“As we approach the Union Budget 2024-25, there is a collective anticipation for policies that will further nurture a growth-friendly environment. Critical factors include enhanced regulatory clarity, better access to funding, lower TDS rate for startups and extending the TDS exemption enjoyed by banks to startups. These would alleviate working capital challenges,” said Arpit Chug, chief financial officer (CFO), Razorpay.

Fintech firms operating a network of business correspondents (BCs) have sought a waiver on goods and services tax (GST) and taxes on financial services.

“We urge for a waiver of GST on all financial services made available from BC outlets, an income tax relief for the next seven years, and reduced import duty on essential financial services devices,” said Anand Kumar Bajaj, founder, managing director (MD), and chief executive officer (CEO), PayNearby, a banking and digital network fintech.

Business correspondents are retail agents engaged by banks for providing banking services at locations other than a bank branch, or an ATM, according to RBI.

“Tax benefits on total expenditure for fintechs involved in the financial empowerment mission have been sought. In light of this, we propose specific measures, including a special 5 per cent GST rate for startups working for last-mile empowerment. This will facilitate crucial financial and digital services to the citizens,” Bajaj added.

Meanwhile, in the backdrop of the RBI inviting comments on the draft directions of payment aggregator regulations, firms across the fintech spectrum have urged for a uniform know your customer (KYC) norms.

“We advocate a uniform KYC framework to improve efficiency and financial inclusion. Recognising fintech's role, establishing a priority sector for borrower loans, and rationalising employee stock ownership plan (ESOP) taxation will attract top talent and foster growth in emerging sectors,” said Ashish Goyal, co-founder & chief financial officer (CFO), Fibe, a digital lending fintech firm.

Similarly, the sector is hoping to see dedicated policy announcements in Cloud technology and implementation of Central Bank Digital Currency (CBDC), among others.

“We expect guidance on the adoption of Cloud technology, which is vital for scalability and innovation in our sector. Furthermore, clarity on the implementation of CBDC will help fintech companies prepare for this significant shift in the financial landscape,” said Sagar Agarwal, co-founder and managing partner, Beams Fintech.

Apart from a simplified tax structure, regulatory clarity and improved policy announcements, companies are looking forward to having priority funding to non-banking financial companies (NBFCs) that provide credit facilities to micro, small and medium enterprises (MSMEs).

“In the upcoming Budget, it is crucial to prioritise funding for these NBFCs and ensure subsidised rates for MSMEs.

Additionally, reducing credit guarantee registration fees will enable lenders to pass on benefits effectively to small and medium enterprises. It will further create an ecosystem where access to capital will become seamless,” said Harshvardhan Lunia, founder and CEO, Lendingkart Group.

Firms said governmental intervention will be required for funding, with improved ease of doing business in India.

“The significant financing gap of $2.5 trillion calls for innovative solutions to mitigate risks and reduce interest rates through robust credit guarantees. There must be tailor-made financing solutions for startups and MSMEs,” said Pushkar Mukewar, CEO and co-founder, Drip Capital, a cross-border digital trade finance platform. 

The wish list

> Lower tax deducted at source for startups to ease working capital challenges

> Relaxation of goods and services tax on financial services

> Uniform know your customer process

> Priority funding to NBFCs providing credit to MSMEs