As India prepares for Finance Minister Nirmala Sitharaman to announce the Union Budget for the fiscal year 2025- 26 on February 1, Indian fintechs are demanding for measures to be incorporated in the country's yearly budget.

Previously, the Union Budget 2024-25 prioritized employment, skill development, MSMEs, and the middle class. Among other announcements, Sitharaman mentioned the provision of INR 1.52 lakh crore for agriculture and allied sectors, the establishment of over 100 India Post Payment Bank branches in the North-East region to expand banking services, the increase in the limit of Mudra loans to INR 20 lakh from INR 10 lakh for entrepreneurs in the 'Tarun' category, and a comprehensive rationalization of the GST tax structure.

According to the FM, a simplified tax regime accounted for over 58% of corporation tax in 2022-23, while more than two-thirds of taxpayers converted to the new personal income tax regime. Ahead of the Union Budget 2025-26, fintech businesses expect the government to boost financial offers and advantages to neglected populations, increase tax slabs, and bolster the MSME lending ecosystem. 

NABARD's All India Rural Financial Inclusion Survey (NAFIS) for 2021-22, published on October 10, 2024, found that financial literacy grew by 17 percentage points, from 33.9% in 2016-17 to 51.3% in 2021-22. The Pradhan Mantri Jan Dhan Yojana (PMJDY) claimed that 35.95 crore accounts in rural/ semi-urban areas had been opened as part of financial inclusion initiatives.

"A waiver of GST on all financial services offered at BC outlets, which serve as the backbone of rural banking in India, would ease the financial burden on last-mile agents and encourage more retailers to participate in delivering seamless banking services to underserved communities," said Anand Kumar Bajaj, founder, managing director, and CEO He further added, "We urge tax benefits on total expenditure for fintechs operating in rural regions, which can improve cash flow and ensure smooth operations." His suggested options include a specific 5% GST rate for startups focused on last-mile empowerment, which would enable residents to access crucial financial and digital services.

Prioritize Inflation as a Major Element

The Reserve Bank of India forecasts Q1 inflation of 4.6% and Q2 inflation of 4% for FY 2025-26. Ashish Goyal, Fibe's co-founder and CFO, believes there is an opportunity for the government to address the difficulties faced by individuals, particularly the middle-income group, and the startup ecosystem in the 2019 Union Budget. "This Budget should prioritize inflation as a crucial aspect, and the Finance Ministry should consider raising tax rates. This will bring tremendous relief to salaried individuals, increasing their disposable income and boosting consumer spending," he stated.

ClearTax records show that overall direct tax collections for FY 2024-25 totaled INR 15,02,161 crore. ClearTax records show that overall direct tax collections for FY 2024-25 totaled INR 15,02,161 crore. Previously, the standard deduction for salaried employees was intended to be raised from INR 50,000 to INR 75,000. The current tax rate structure is as follows: NIL for INR 0-3 lakh, 5% for INR 3-7 lakh, 10% for INR 7-10 lakh, 15% for INR 10-12 lakh, 20% for INR 12-15 lakh, and 30% for INR 15 lakh or more.

CA Anand Bathiya, head of the Bombay Chartered Accountants' Society (BCAS), stated, "The tax rates for individuals earning high incomes are also exceedingly high." He supports reducing individual tax rates to a maximum of 30% (including surcharge and cess). According to TATA AIA, the highest marginal tax rate is 42.744 percent, which applies when taxable income surpasses INR five crores.

MSME Lending Ecosystem

The Micro, Small, and Medium Enterprises (MSME) sector accounts for approximately 30% of the nation's GDP and employs roughly 62% of the workforce. Despite its importance, the industry suffers a significant credit gap, with only 14% of MSMEs having access to formal financing.

"Small firms generally lack collateral, making it difficult to obtain financing. To remedy this, the government might simplify NBFC eligibility standards through programs such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Lenders would be more inclined to offer unsecured loans if the guaranteed coverage increased, which would lower their risk and enable MSMEs to obtain credit without any restrictions. Furthermore, establishing a specific fund for the development of cutting-edge fintech solutions for MSME credit assessments would enhance and strengthen loan procedures," according to FlexiLoans.com co-founder Ritesh Jain.

“The Union Budget 2025 prioritizes digitalization and financial inclusion for MSMEs, using technologies such as ULI and TReDS to facilitate finance access. MSMEs struggle to get financing, thus they demand more credit guarantee money and more transparency," stated Rupyaa Paisa director Mukesh Pandey.

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