HOW THE UNION BUDGET 2025 26 WILL BOOST STARTUPS AND THE STARTUP ECOSYSTEM
The Union Budget 2025-26 has laid out a comprehensive framework aimed at accelerating India’s economic growth, driving job creation, promoting entrepreneurship, and fostering innovation. With a strong focus on the middle and lower-income classes, this budget has also crafted a conducive environment for the startup ecosystem to flourish. From increased access to capital and credit, enhanced tax benefits, and robust infrastructure support, the measures announced in the budget hold the potential to significantly boost the startup landscape across the country. This article explores the key highlights of the Union Budget 2025-26 and how they will specifically impact startups and the overall startup ecosystem in India.
Fiscal Deficit Management and Economic Growth
A healthy fiscal policy is one of the key drivers of any economic system, and the Union Budget has made it clear that managing the fiscal deficit will remain a priority. The government has set a target of reducing the fiscal deficit from 4.8% of GDP in FY 2025 to 4.4% in FY 2026. This fiscal prudence is critical for ensuring long-term economic stability, which is essential for fostering a conducive environment for startups.
For entrepreneurs, a stable fiscal policy means reduced macroeconomic volatility, which in turn increases confidence in the economy. Lower fiscal deficits also open up space for increased public and private sector investments. Therefore, as the government brings down its fiscal deficit, the cost of capital may decrease, which can benefit startups by making borrowing cheaper and more accessible.
Tax Reforms and Incentives
Income Tax Benefits for Salaried Class and Middle-Income Households
A significant development in the 2025-26 budget is the introduction of tax relief for the salaried class. With no income tax on an average monthly income of up to ₹1 lakh, this policy is expected to boost disposable incomes for a significant segment of the population. For startups, this can mean increased consumer spending, particularly for services and products in sectors like e-commerce, tech solutions, and consumer goods.
Additionally, the salaried class will also pay no income tax up to ₹12.75 lakh annually in the new tax regime. This change will encourage greater participation in the formal economy, increasing the customer base for startups.
Capital Gains Taxation
Capital gains tax is a crucial area for startups and investors. The budget increased the taxation of short-term capital gains on listed equity shares to 20% and raised the exemption limit for long-term capital gains on equity shares to ₹1.25 lakh per year. While the increase in short-term capital gains tax may have a minor impact on the liquidity of some investors, the enhancement in long-term capital gains exemption will encourage more long-term investments in startups. Startups will benefit as long-term investors are often more patient and less risk-averse, creating a more stable investment environment. Furthermore, the tax reforms encourage domestic investment in high-potential startups, particularly in sectors like technology, manufacturing, and clean energy.
Access to Capital and Credit
Increased Credit with Guarantee Cover to MSMEs
Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s startup ecosystem, and the budget includes significant provisions to support their growth. Credit with guarantee cover to MSMEs has been significantly enhanced from ₹5 crore to ₹10 crore. This measure will ease access to much-needed capital for startups in the MSME sector, empowering them to expand their operations, hire more employees, and scale their businesses.
For early-stage startups that are often unable to access traditional forms of credit due to their lack of collateral or credit history, this provision is a game-changer. It will reduce the cost of financing and improve cash flow, allowing them to focus on product development, market expansion, and innovation.
Financial Support for Farmers and Rural Startups The introduction of the ‘Prime Minister Dhan-Dhaanya Krishi Yojana,’ aimed at benefiting 1.7 crore farmers in 100 low agricultural productivity districts, presents an opportunity for agritech startups. The availability of loans under this scheme will help rural startups in the agritech sector to access affordable financing, enabling them to improve agricultural productivity and contribute to rural economic growth.
Additionally, loans up to ₹5 lakh through the Kisan Credit Card (KCC) under a modified interest subvention scheme will support startups that are involved in agricultural innovations. By encouraging innovation in agriculture, these provisions will help establish a thriving agritech ecosystem that could revolutionize India’s agricultural sector.
Focus on Innovation, Research, and Development
National Manufacturing Mission
The budget also outlines a National Manufacturing Mission that will cover small, medium, and large industries with the goal of furthering ‘Make in India.’ For startups in the manufacturing sector, this mission will provide a comprehensive framework for growth, from early-stage innovations to large-scale production. By creating an environment conducive to manufacturing, startups will have a platform to develop and scale their ideas into commercially viable products. Startups focused on clean energy solutions, automation, smart manufacturing, and sustainable technologies will particularly benefit from this focus. By fostering an ecosystem that prioritizes manufacturing, the government is positioning India as a global hub for innovation and industrial growth.
Increased Allocation for R&D and Innovation
The government has earmarked ₹20,000 crore for private-sector-driven research and development and innovation initiatives. This is a significant step towards enhancing India’s competitiveness in the global economy. Startups involved in cutting-edge technologies like artificial intelligence (AI), machine learning (ML), robotics, and biotechnology will benefit from this provision. The funding will allow these startups to conduct critical research, build prototypes, and commercialize their innovations, strengthening their position in both domestic and international markets. In particular, the creation of a Centre of Excellence in Artificial Intelligence for education with an outlay of ₹500 crore is a critical development. This will create a talent pipeline for AI-driven startups and encourage collaborations between industry and academia, thus accelerating the pace of innovation.
Focus on Education and Skill Development
Atal Tinkering Labs and STEM Education
The budget’s focus on education includes the establishment of 50,000 Atal Tinkering Labs in government schools over the next five years. These labs will provide students with the resources to experiment, innovate, and build prototypes in science and technology fields. For the startup ecosystem, this move will nurture a new generation of tech-savvy entrepreneurs who are equipped with the skills to create solutions for tomorrow’s challenges. Startups focused on STEM education, edtech, and innovation will also find an increasing pool of talent emerging from these initiatives. The government’s emphasis on hands-on learning and practical skills will equip future entrepreneurs with the technical know-how required to launch successful ventures.
Incentives for Gig Economy and Startups in the Informal Sector
Gig Worker Support
Gig workers, who make up a significant portion of the Indian startup workforce, have been granted identity cards, registration on the e-Shram portal, and access to healthcare under the PM Jan Arogya Yojana. These measures will benefit startups that rely on gig workers for various tasks, from delivery services to freelancing in the creative, tech, and design sectors.
For startups in the gig economy, such as those in the ridesharing, delivery, and content creation sectors, these benefits will help them retain and attract talent while contributing to the wellbeing of their workforce. It will also ensure that gig workers have better access to healthcare and social security, which in turn increases their productivity and job satisfaction.
Infrastructure Development
Urban Development and Smart Cities
The ₹1 lakh crore Urban Challenge Fund announced for ‘Cities as Growth Hubs’ will help build infrastructure that is essential for startups to operate efficiently. For technology-driven startups, the availability of robust infrastructure in urban areas will enhance connectivity, reduce operational costs, and provide access to a larger customer base.
Furthermore, the budget’s focus on the Modified UDAN scheme to enhance regional connectivity to 120 new destinations will open up more opportunities for startups across India, particularly in the tourism, logistics, and retail sectors. Better transportation networks will facilitate the movement of goods and services, ensuring startups can reach new markets faster.
Nuclear Energy and Green Innovation
The establishment of a Nuclear Energy Mission for research and development of small modular reactors, with an outlay of ₹20,000 crore, is a step towards positioning India as a leader in clean energy. Startups involved in sustainable and renewable energy will benefit from this focus, particularly those in the clean tech, energy storage, and electric vehicle (EV) sectors.
Additionally, the government has incentivized battery production for electric vehicles by exempting additional capital goods for EV and mobile battery manufacturing. These measures will fuel innovation in the green energy sector and provide a platform for startups in this space to thrive.
Support for the Housing and Real Estate Sectors
Stressed Housing Units and Affordable Housing
The ₹15,000 crore SWAMIH Fund for expediting the completion of stressed housing units and ₹20,000 crore allocation for private sector-driven housing and real estate development will support real estate and proptech startups. With these measures, startups focused on affordable housing, construction technology, and real estate innovation will find a growing market for their solutions.
Startups providing technology solutions to improve the affordability and efficiency of housing construction, as well as those involved in real estate development and management, will be well positioned to benefit from these provisions.
Decriminalizing Laws and Regulatory Simplification
The introduction of the Jan Vishwas Bill 2.0 to decriminalize more than 100 provisions in various laws is a significant step toward creating a business-friendly regulatory environment. Startups, which often struggle with cumbersome regulatory frameworks, will benefit from this reform by reducing the burden of compliance.
Additionally, the extension of the time limit for updated income tax returns from two to four years and the decriminalization of delays in TCS payments will simplify administrative processes, allowing startups to focus more on innovation and growth.
Conclusion: A Holistic Approach to Startup Growth
The Union Budget 2025-26 presents a forward-looking strategy that addresses the key pain points faced by startups in India. With enhanced access to capital, tax benefits, infrastructure development, and a focus on innovation and education, the budget lays the foundation for a thriving startup ecosystem. The emphasis on reducing fiscal deficits, simplifying regulations, and boosting investor confidence further enhances the attractiveness of India as a hub for entrepreneurship.
In summary, the Union Budget 2025-26 takes a holistic approach to foster entrepreneurship by creating an enabling environment for startups to thrive across all sectors. By focusing on innovation, research and development, infrastructure, and talent development, the government is setting the stage for India to become a global startup powerhouse.