Fintech leaders seek tax breaks, AI incentives, and digital lending reforms in Budget 2025

With Union Budget 2025 approaching, fintech stakeholders are voicing their expectations for reforms and initiatives that could further solidify India’s position as a global fintech powerhouse.

Industry leaders have emphasised the need for targeted measures to bridge the existing credit gap, foster innovation, and enhance financial inclusion.

India's fintech industry experienced its lowest funding in three years, with a total of $1.9 billion in 2024, a decline of 33% compared to the $2.8 billion raised in 2023, according to Traxcn data. In the year 2022, the industry raised a whopping $5.6 billion.

The last Budget, announced in an election year, contained few blockbuster announcements that affected the broader fintech space. While the Budget introduced increased taxes on long-term and short-term capital gains, as well as a higher securities transaction tax, these changes aimed mostly at moderating market activities.

This year the sector’s wish list for the Budget includes tax breaks, AI push and digital lending reforms.

Bridging the MSME credit gap

Prashanth Ramdas, Partner at Khaitan & Co., highlighted the pressing need for policies addressing the significant credit gap in the MSME sector. 

"MSME credit remains an area which fintechs are focusing on due to a huge credit gap. Despite initiatives like CGTMSE and the TReDS platform, a significant gap persists," he said.

Ramdas emphasised the importance of incentivising credit into the MSME sector through tax sops on interest income and other measures, which would catalyse lending, particularly in rural and semi-urban areas.

Fostering digital lending and inclusion

Rohit Garg, Co-founder and CEO of Olyv a neo-banking platform, stressed the importance of empowering digital lending platforms. 

"We're eagerly waiting to see how the budget will propel growth and financial inclusion through initiatives that bring credit access to the unbanked population," Garg said. 

He advocated for tax incentives for digital lending platforms and policies that enhance digital infrastructure and data-sharing frameworks, alongside promoting nationwide credit literacy programmes.

Similarly, Rishabh Goel, Co-founder and CEO of Credgenics a fintech startup specialising in debt resolution solutions, called for measures to make loans more affordable for SMEs and MSMEs.

"Lowering the loan amount threshold under the SARFAESI Act and encouraging alternative dispute resolution processes could help address NPAs swiftly," Goel noted. He also underscored the importance of nurturing fintech-led innovation in credit risk management.

The SARFAESI Act empowers banks and financial institutions to recover bad loans by taking possession and selling the borrower's assets without going through lengthy court proceedings.

"The lending sector expects some major changes in the upcoming Union Budget. Increased credit fraud, limited access to customer protection tools and cyber scams have temporarily disrupted the digital lending ecosystem. This year's budget presents opportunities to introduce policies that can strengthen digital infrastructure and enhance access to financial services," Yashoraj Tyagi, CEO, CASHe, personal loan and credit line app.

"There is an urgent need to make the lending process more efficient and accessible, which requires government support through targeted regulatory reforms. Establishment of a dedicated India Fintech Credit Fund (IFCF), could be a game-changer in enabling smaller fintech companies to access affordable financing; This initiative shall help establish robust regulation to curb illegal lending, consumer protection, and enhancement." Tyagi added.

R&D and technological advancement

Arpit Chug, CFO of Razorpay, called for the need for greater support for startups, particularly in research and development. 

"Startups investing in cutting-edge tech infrastructure should receive enhanced tax deductions and subsidies for R&D-related costs," Chug said. 

He also suggested tax reforms to benefit employees, advocating for ESOP taxation at the time of sale rather than exercise. "Such measures will foster long-term value creation," he added.

On the adoption of AI, Goel stated, "Increased support for R&D and incentivising AI penetration in financial services is crucial to fulfill India’s aspiration to become a global leader in AI, with its market projected to reach $17 billion by 2027."

Regulatory reforms and green finance

Surabhi Sanyukta, VP of Investments at BlackSoil, emphasised regulatory streamlining and financial sustainability. 

"We anticipate targeted measures to accelerate the fintech sector's growth. Lowering GST on fintech services from 18% will enhance affordability and broader adoption," she remarked. 

Sanyukta also urged the government to allocate funds for advanced cybersecurity frameworks, enhancing trust and resilience in the sector.

Beams Fintech Fund, an early-stage venture capital fund that invests in financial services, fintech, and SaaS companies in India, expressed optimism about initiatives for sustainable finance. "Green finance and ESG-aligned policies could position India as a global leader in fintech investments," their spokesperson said. 

It also called for expanded credit guarantees and tax incentives to boost private equity (PE) investments.

Digital payments and infrastructure

In the context of digital payments, Ramdas from Khaitan & Co. underscored the importance of UPI incentive schemes to encourage low-value transactions. "Specific schemes to support acquirers and enhance adoption of UPI for zero-MDR transactions could be transformative," he noted.

Looking ahead, fintech leaders are united in their belief that the Union Budget 2025 can set the stage for transformative growth by introducing forward-thinking policies, with targeted interventions in MSME credit, digital lending, AI, and sustainable finance.