India’s venture capital industry and startup ecosystem are urging the government to introduce regulatory relief in the Union Budget 2026, arguing that targeted policy changes could unlock billions of dollars in domestic capital and position India as a global leader in emerging technologies.
Investors and startup executives are calling for the extension of startup recognition from 10 to 15 years for deep-tech companies, rationalisation of taxes on alternative investment funds (AIFs), and a reduction in goods and services tax (GST) on education-technology (edtech) platforms.
These demands come at a time when fundraising activity has fallen to multi-year lows, prompting venture investors to seek counter-cyclical government support to maintain deal flow. Industry leaders also stress the need for regulatory frameworks that reflect the capital-intensive nature of sectors such as semiconductors, space technology, and artificial intelligence—areas central to India’s self-reliance ambitions.
Deep-Tech Capital Access
Anirudh A. Damani, managing partner at Artha Venture Fund, said the deep-tech ecosystem’s primary expectation is alignment between policy and India’s long-term self-reliance goals.
Sectors such as semiconductors and space technology operate on extended innovation and capital cycles, requiring regulatory frameworks that reflect these realities. One proposed step is extending the Department for Promotion of Industry and Internal Trade (DPIIT) startup recognition period from 10 years to at least 15 years for deep-tech companies.
Once companies lose DPIIT recognition, they become ineligible for investment from Category I AIFs, angel funds, and government-backed platforms.
“That effectively blocks them from domestic institutional capital at the exact stage when they are becoming commercially relevant,” Damani said.
Building Long-Term Capital Pools
Gopal Jain, managing director and CEO of Gaja Alternative Asset Management, said India needs deeper pools of long-term capital to help startups scale sustainably.
According to Jain, AIFs could grow from approximately ₹13.5 trillion today to nearly ₹100 trillion over the next decade. Greater participation from domestic institutions and long-term capital pools, he said, could significantly scale India’s private markets.
Electric Vehicles: Incentivising Domestic Manufacturing
Kunal Khattar, founding partner at AdvatEdge Partners, said India must decide whether it wants to remain an assembler of electric vehicles or become a global hub for EV technology.
Beyond capital subsidies, he argued that India needs a policy push to support micro-factories and component localisation focused on core strengths. The Budget should incentivise domestic manufacturing of magnet-free motors and power electronics to protect Indian automakers from global supply-chain shocks.
While the first phase of EV adoption relied heavily on purchase subsidies such as the Faster Adoption and Manufacturing of Electric (and Hybrid) Vehicles (FAME) scheme, Khattar said the next phase requires a structural rethink of asset lifecycles.
He highlighted the absence of standardised battery health certification and resale benchmarks, which has created valuation gaps, higher interest rates, and lower loan-to-value ratios from lenders. The Budget, he said, should catalyse the development of a secondary EV market ecosystem.
Education Technology
Edtech players are calling for tax exemptions, innovation-linked incentives, and public-private partnerships to accelerate digital learning adoption.
Anuj Vishwakarma, CEO for higher education programmes at upGrad, said India’s tax framework should recognise skilling as an investment rather than an expense.
Sumeet Mehta, CEO and co-founder of LEAD Group, said he hoped the government would take a more proactive role in supporting the edtech ecosystem by removing GST on educational services.
Industry participants are also advocating a reduction in GST on digital tools, infrastructure, and content for schools from 18% to a lower tax bracket.
Rajeev Tiwari, founder, CFO, and chief product officer of STEMROBO, said enhanced credit support and incentives for impact-driven startups could significantly benefit the sector.
“The Budget could introduce innovation-linked incentives for edtech platforms working in priority areas such as AI-enabled learning, teacher training, foundational literacy, and skill-based education,” Tiwari said. Policies that support pilot-to-scale pathways—allowing proven solutions to be adopted more efficiently by government schools—would strengthen the ecosystem, he added.
Fintech
Fintech companies and technology service providers have called for financial incentives to modernise legacy systems, funding for research and development projects, and innovation-linked tax benefits.
Ramki Gaddipati, CEO (APAC) and global chief technology officer at Zeta, said time-bound fiscal incentives—such as accelerated depreciation or targeted capital expenditure support—could help banks modernise core processing, digital experiences, and fraud and risk platforms in a phased and responsible manner.
Jitin Bhasin, founder and CEO of healthcare fintech startup SaveIN, said that as India moves toward a $5 trillion economy, the Budget presents a critical opportunity to catalyse domestic consumption and strengthen the startup ecosystem.
He called for rationalising long-term capital gains tax to bring parity between unlisted startup shares and listed equities, which he said is essential to encourage domestic investors to support Indian innovation over the long term.
Simplifying the GST framework for financial services and expanding credit guarantee schemes would also help improve ease of doing business for consumer-facing startups, Bhasin said.
Software Industry
Ravi Kumar, CEO of digital transformation consulting firm Cubastion, said Budget 2026 could help software companies scale from pilot projects to full-scale deployments.
Support for artificial intelligence adoption is a key expectation, Kumar said. Startups and software firms need easier access to computing resources, clearer guidelines on cloud data usage, and policy support that enables the development of AI solutions addressing real-world problems.
“With sustained policy support, the Indian software industry can create high-quality employment, move up the value chain, and contribute more meaningfully to India’s digital evolution,” he said.
Employee Stock Options
Rachit Chawla, CEO and co-founder of Finway Accelerator, said employee stock ownership plans (ESOPs) in India are treated more as a tax burden than a wealth-building tool.
Currently, employees are taxed when they exercise stock options—before they receive any liquidity—creating cash-flow challenges, particularly at early-stage startups where exits may be years away. Employees often have to pay taxes from personal savings on shares they cannot sell.
While the government has allowed certain employees to defer tax payments, these benefits are limited to startups that meet strict criteria related to age, turnover, and certification, meaning only a small number of companies and employees qualify.
The startup ecosystem is seeking broader reforms, Chawla said. Key proposals include taxing employees only upon liquidity events such as an IPO, buyback, or acquisition; expanding tax benefits to a wider set of startups; and simplifying valuation methods while taxing stock options as long-term investments.
Budget 2026: Startup Wish List
- Deep-tech: Extend DPIIT startup recognition from 10 years to at least 15 years
- Electric vehicles: Incentivise domestic manufacturing of magnet-free motors and power electronics
- Edtech: Reduce GST on digital tools, infrastructure, and school content
- Fintech: Provide incentives for legacy system modernisation and R&D funding
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Originally posted at: business-standard.com/industry/news/budget-2026-startups-investors-push-regulatory-changes-to-unlock-capital-126011901235_1.html