Fintechs seek regulatory clarity and certainty, uniform KYC rules from Budget 2024-25

Fintechs are requesting that the Union Budget 2024-2025 will announce policies that will ensure a growth-friendly environment including a lower Tax Deduction at Source (TDS) rate for startups.

They are also hoping that the policies will bring more regulatory clarity and certainty after multiple startups were forced to change their business models following the Reserve Bank of India’s guidelines.

Since fintechs come up with innovative products where no specific regulatory guidelines are there, they tend to operate in regulatory grey zones. However, the RBI’s policy is that until a business starts impacting a sizeable population or consumers, it will not be forming any specific guidelines for that segment. This has been detrimental to several fintechs that were forced to pivot after achieving a sizeable scale.

While manufacturing startups get lower tax rates under the Make in India programme, fintechs operating in the services space do not get any subsidies or incentives even when they help assist the government’s financial inclusion agenda by bringing new consumers to their fold.

Meanwhile, payment companies are requesting the government to enhance the subsidy payments to them to facilitate and grow the UPI payments. The players include payment aggregators, UPI apps and banks. The government also has a programme called in the form of Payments Infrastructure Development Fund (PIDF) to extend the reach of digital payments across tier 3 towns and beyond.

Since there is no merchant discount rate (MDR) or merchant commission for payments made using UPI, most of the ecosystem players lose money while customers and merchants make UPI payments. The government has been providing around Rs 2,000 crore as subsidies while the industry is requesting around Rs 12,000 crore as subsidies.

A few fintechs have also requested the government to provide incentives such as weighted tax deductions and subsidies for Research and Development (R&D) employee costs, which would significantly promote R&D activities in the startup ecosystem and create more employment opportunities.

Fintechs also expect the government to announce uniform KYC (know your customer) framework for all financial services to avoid any confusion or sudden changes in regulatory norms on the KYC requirement for a specific product.