Budget 2025 expectations: Private equity sector awaits progressive reforms

By Bhargav Selarka
Budget 2025 expectations: Private equity (PE) investments in India have played a transformative role in India’s economic journey, fuelling the growth of startups, infrastructure projects, and various burgeoning sectors.
As the Union Budget 2025 draws closer, the PE community looks forward to reforms that could further simplify regulatory processes, enhance investor confidence, and align India’s investment climate with global standards. This article explores key areas where progressive changes are anticipated.
The gift tax provisions have been instrumental in ensuring transparency in, inter alia, financial transactions. Specially in case of shares, the said provisions aim to tax the difference between the fair value of the share (as prescribed) vis-à-vis the actual price paid by the buyer. However, there are several transactions between unrelated parties in the PE space where the commercially agreed price may be less than the fair value. This is driven by various business/ other deal factors, owing to which the exchange traded price does not always reflect the fair value of the listed share.
While the intent of the gift tax provisions is not to tax such transactions, absence of any specific exclusion leads to unnecessary ambiguity and hardship resulting in an overall impact on PE investments into India. The PE players look forward to certain clarificatory changes on this aspect to ensure that genuine transactions are not impacted by the unintended consequences of the gift tax provisions.
The ability to seamlessly make an entry into and exit from Indian investments remains a key priority for PE players. It must be noted that India has witnessed several large successful exits in the last year, thereby promoting and enhancing the confidence of PE players in the Indian markets.
Through the Union Budget 2025 and in line with the overall Government agenda, one can expect regulatory reforms which help in quicker turnaround time on, issuance of licenses and providing regulatory approvals for transactions. This will help reduce overall deal fatigue and boost deal volumes in India.
On the tax side, while India has made strides in resolving tax disputes and enabling investor-friendly resolutions, there is scope to make clarificatory amendments/ issue circulars on well settled matters to reduce litigation and/ or introduce newer dispute resolution schemes (such as Vivad se Vishwas) to settle litigations (without interest and penal repercussions) on an on-going basis. From the perspective of PE players such moves would provide significant relief so as to reduce litigation at the level of their Indian portfolio companies and smoothen the exit/ liquidation processes.
Also Read | Budget 2025 income tax new versus old regime: Top 7 expectations of taxpayers from FM Sitharaman
Investment in infrastructure is pivotal for accelerated and inclusive socio-economic development of a country. India's goal towards becoming a developed nation by 2047 is significantly contingent on improving its infrastructure, a key pillar that drives economic growth.
The current income-tax exemptions provided to Sovereign wealth funds (SWFs) and Pension Funds (PFs) has been pivotal in channelling long-term capital into the infrastructure sector. However, the current exemption is linked to investments made on or before 31 March 2025 and is thus, set to expire. Industry stakeholders are hopeful for an extension of the timeline (maybe 7-10 years) as the same ties in India’s aspirations to be a developed country by 2047.
Employee stock ownership plans (ESOPs) are a widely used incentives for attracting and retaining top talent in startups and private equity-backed companies. However, the current tax framework could benefit from enhancements that align taxation with liquidity events.
By linking tax obligations (which are currently triggered on exercise of ESOPs) to the actual realization of gains, ESOPs could become a more effective tool for fostering alignment between employee/ management contributions and business growth. This will help PE players attract good talent with back-ending of significant portion of benefits for the management teams. This will help enhancing the skin-in-the-game approach and boost partnerships between financial investors (PEs) and management teams.
Also Read | Budget 2025 new vs old income tax regime: Will FM Sitharaman do away with the old regime soon? Experts weigh in
In the coming years, players and investors like SWFs, PFs, and specialized secondaries investors, alongside technological advancements and evolving consumer behaviour, will continue to redefine the PE ecosystem in India. Positive changes by the Union Budget 2025 will ensure India’s continued economic growth, global competitiveness and will help in ensuring regular PE deployment of India dedicated dry powder.
(The author, Bhargav Selarka, is Tax Partner, EY India. Ashish Shah, Senior Tax Professional, EY India also contributed to the article)