The Union Budget 2024-2025 announcement is just approaching and amid some expectations the co-founder and CEO of Zerodha, Nithin Kamath, shared a transformative vision. He said it is time to nurture a new wave of entrepreneurs emerging from the small towns and villages in India.
Kamath’s proposition is simple and profound. It is to encourage the wealthy to invest in startups beyond the urban centers. He pointed towards a critical gap. He said that venture capitalists typically avoid rural and semi-urban areas. This is the reasons the smaller towns and villages basically rely on local wealthy individuals for investment opportunities.
A key suggestion of Kamath is to tweak Section 54F of the Income Tax Act that offers tax exemptions on capital gains if the proceeds are reinvested in residential properties. He argues that including investments in startups alongside residential properties in the section would make startup investing attractive as well as accessible.
Kamath acknowledged risks of potential misuse of the provision through a post on X social platform. However, he emphasized that the benefits would far outweigh the risks. The current cap for tax exemptions under is Rs 10 crore for any long-term asset sale. It excludes residential property.
His vision is about financial incentives as well as about fostering an entrepreneurial culture in areas that have long been overlooked. Shifting focus of investment will lead to an opportunity to unlock untapped potential, spur local economies and create jobs too.
The effects of such a policy could be enormous. It is believed the change in policy may encourage more investments in startups in the rural areas and this could simultaneously lead to a more balanced economic development. It may reduce migration pressure on cities too. It may bring prosperity to the hinterlands.