Budget 2025: Rs 10,000 crore Fund of Funds proposed for startups

The Alternate Investment Funds (AIFs) for startups have received commitments of more than Rs 91,000 crore so far, Sitharaman said in her Budget speech.

These are supported by the Fund of Funds set up with a Government contribution of Rs 10,000 crore.

"Now, a new Fund of Funds, with expanded scope and a fresh contribution of another Rs 10,000 crore will be set up," she said.

The Fund of Funds for Startups (FFS) scheme has changed the landscape of startup funding in India and it has made a major difference in the startup ecosystem.

The Centre created Fund of Funds for Startups (FFS) Scheme in 2016 with a corpus of Rs 10,000 crore to provide much-needed boost to the Indian startup ecosystem and enable access to domestic capital.

The scheme does not directly invest in startups, instead provides capital to SEBI-registered Alternative Investment Fund (AIFs), known as daughter funds, who in turn invest money in growing Indian startups through equity and equity-linked instruments.

India has one of the largest startup ecosystem, perhaps third in the world, and now it is the endeavour to become the best.

In her Budget speech today, the finance minister announced that a Deep Tech Fund of Funds "will also be explored" to catalyze the next generation startups as a part of this initiative.

As part of Ease of Doing Business, an extension of time limit u/s 80-IAC for startups has been announced.

It is proposed to extend the benefit provided under Section 80-IAC to startups for another period of five years -- the benefit will be available to eligible start-ups incorporated before April 1, 2030.

In July 2024 Budget, to bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, the government abolished the so-called angel tax for all classes of investors.

It was a proposal from the industry for a long time, and the July announcement drove more investments towards startups in particular. Startups function as engines of economic growth, playing a crucial role in generating new jobs, ideas, products, and services.

As per definition, angel tax refers to the income tax levied by the government on funding raised by unlisted companies, or startups, if their valuation exceeds the company's fair market value.

This contentious tax typically impacts angel investment the most and therefore is called the angel tax. It was introduced in 2012 by the UPA government in order to detect money laundering practices and catch bogus startups. (ANI)