- Founders and investors want the Budget 2026 to announce broader, simpler ESOP rules that align tax outgo with actual cash events such as a sale or exit
Another big request is enabling greater participation from large domestic institutions, such as banks, pension funds, and provident funds, into private market
Indian founders and investors will be closely watching as finance minister Nirmala Sitharaman steps into the Parliament today to present her ninth consecutive Budget.
After a year of tighter capital and sharper scrutiny on unit economics, new-age tech ventures are looking at Union Budget 2026-27 for more than familiar policy gestures. While demands like tax exemptions, sops and new funds remain the mainstay, the startup ecosystem also wants execution.
Beyond the headline announcements, the ecosystem wants policies that translate into on-ground funding depth, compliance predictability and demand creation. Let’s take a quick look at the key hopes and demands of the world’s third-largest startup ecosystem from FM Sitharaman.
Streamlining ESOP Taxation
TL;DR: Homegrown startups are looking at the Budget for relief on ESOP taxation.
Homegrown startups are looking at the Budget for relief on ESOP taxation. In India, ESOP gains are taxed twice – first as a pre-requisite at exercise and then again as capital gains at sale. This often forces employees to pay tax even before they have liquidity.
Founders say this weakens the role of ESOPs as a retention tool, as startups stay private longer and exits become less predictable. While a deferral mechanism exists for eligible startups, entrepreneurs and investors want broader, simpler rules that align tax outgo with actual cash events such as a sale or exit.
Beyond taxation, founders also flagged regulations, which restrict granting ESOPs to founders after a company lists. Industry insiders told Inc42 that the upcoming Budget should usher in new guardrails to allow promoter stock options, incentivising founders and innovators to make in India. They also want a listed company’s board to be allowed to determine if a promoter gets ESOP, not the government.
The Ghost Of Angel Tax
TL;DR: Angel tax was abolished in July 2024, but its aftershocks are still rattling founders, as legacy notices and demands remain unresolved.
Angel tax was abolished in July 2024, but its aftershocks are still rattling founders, as legacy notices and demands remain unresolved. TravelKhana founder Pushpinder Singh told Inc42 that his startup’s case has seen no hearings since 2019.
He isn’t alone. At least 2,743 DPIIT-recognised startups were under scrutiny in 2023, and founders say uncertainty persists on what happens to old notices. For many, this means added liabilities, which are priced into funding deals and can complicate due diligence.
Going Beyond Equity
TL;DR: Investors want FM Sitharaman to acknowledge that startup financing can’t be equity-led alone anymore.
Investors want FM Sitharaman to acknowledge that startup financing can’t be equity-led alone anymore. The priority, they argue, should be policy support for blended capital, where venture debt and alternative credit sit alongside equity, to enable startups to scale without excessive dilution.
Ecosystem players want FM to announce frameworks for cash flow-aligned lending, sector-specific credit and stronger risk-sharing mechanisms to make it easier for growth-stage new-age tech ventures to borrow responsibly and sustainably.
Unlocking Domestic Funds
TL;DR: Another big request is strengthening India’s domestic funding pipeline, as foreign inflows remain uneven.
Another big request is strengthening India’s domestic funding pipeline, as foreign inflows remain uneven. VCs want the government to enable greater participation from large domestic institutions, such as banks, pension funds, and provident funds, into private markets.
Investors are also seeking tax incentives to redirect domestic wealth into innovation. One suggestion is rolling out tax benefits for individuals that reinvest capital gains into a fund of funds. Another proposal is to offer tax exemptions to individuals that contribute directly to SIDBI’s fund of funds to widen the base of long-term domestic capital for startups.
The Deeptech Moat
TL;DR: But investors want this year’s Budget to take effective steps to ensure that capital becomes accessible easily by cutting red tape and streamlining inter-ministerial coordination.
Last year, the Centre announced INR 1 Lakh Cr R&D fund. But investors want this year’s Budget to take effective steps to ensure that capital becomes accessible easily by cutting red tape and streamlining inter-ministerial coordination.
Investors are hoping FM Sitharaman will announce measures to ensure that high-risk innovation grants and incentives reach startups that are building genuine IPs, rather than those merely assembling imported components.
Democratising Angel Investing
TL;DR: To further shore up funding, investors want angel investing to be democratised to allow professionals and informed small investors to back startups with appropriate guardrails.
To further shore up funding, investors want angel investing to be democratised to allow professionals and informed small investors to back startups with appropriate guardrails. They want the Budget to introduce measures to enable individuals to write modest cheques, build diversified startup portfolios, add operational expertise, and share upside with founders.
Need For Market Sanity
TL;DR: While 2025’s startup IPO spring delivered liquidity, it also highlighted flaws in pricing and execution as several new-age tech stocks plunged post-listing.
While 2025’s startup IPO spring delivered liquidity, it also highlighted flaws in pricing and execution as several new-age tech stocks plunged post-listing. This created a negative feedback loop for investors.
Investors want the Budget to introduce tighter, more thoughtful regulatory discipline, especially for large issues, to bring sanity to pricing and keep the IPO route sustainable.
Curated by Dr. Elena Rodriguez
