INDIA Trends and Developments Contributed by: Siddharth Mody, JSA Advocates and Solicitors
Regulatory and Policy Developments Impacting VC
ting up local entities. This move aims to bring more India-focused capital onshore, reduc - ing dependence on offshore jurisdictions like Singapore or Mauritius. Fund managers establishing entities in GIFT City can avail themselves of several benefits such as tax holidays, GST exemptions, capital gains tax exemptions, etc. Governance and Operational Trends in Start- Ups Tighter funding conditions and several gov - ernance scandals in 2022–23 accelerated the push towards better discipline and transpar - ency. Numerous start-ups cut operating costs, focusing on core products and profitability to extend their runways. Investors now typically insist on thorough audits, stronger internal con - trols and better board oversight before cutting large cheques. Independent directors and struc - tured reporting are increasingly standard, even at Series A or B stages, which is a significant departure from the lax governance norms of the past. Transparency with stakeholders has improved. Founders often share detailed monthly or quar- terly updates with their cap tables, recognising that consistent communication fosters investor trust and longer-term backing. ESOP schemes remain popular, enabling start-ups to align employee incentives with growth and conserve cash. Compliance has also gained prominence, from adhering to tighter RBI regulations in fintech to preparing for India’s new data protection law. Many see robust governance as a competitive advantage rather than a bureaucratic burden, especially with larger fundraises and potential IPOs on the horizon.
India’s government has continued efforts to sim - plify business operations and promote start-ups, with several notable reforms in 2024–25. • Angel Tax Abolished – After years of contro - versy, the “angel tax” was finally removed. Previously, capital raised by a start-up at a premium above fair market value could be taxed as income. Eliminating this provision smooths fundraising for early-stage compa - nies, removing a key barrier for both domestic and foreign investors. • Extended Tax Holiday – Eligible start-ups now enjoy a three-year tax holiday within their first decade of incorporation, extended to those formed by 31 March 2025. While not all young companies reach profitability so quickly, it remains a valuable incentive for those that do. VCs are more likely to invest in start-ups that have a clearer path to profitability. • AIF Regulations – SEBI introduced guidelines to help older venture capital funds transi - tion to the alternative investment fund (AIF) regime, aligning them with modern govern - ance requirements. Proposed changes to angel fund norms could permit larger indi - vidual investments (up to INR250 million) and shorter lock-ins, thus stimulating more robust early-stage funding. • FDI and Sectoral Policies – Further liberalisa - tion of foreign direct investment, especially in space tech (up to 100% FDI) and semicon - ductor manufacturing (aided by production- linked incentives), attracted multinational interest. These policy shifts create ancillary opportunities for start-ups in hardware, elec - tronics supply chains and deep tech. • GIFT City Incentives – Gujarat International Finance Tec-City (GIFT City) offers tax and regulatory benefits for fund managers set -
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