Copyright startuppedia
"A simple post by Zerodha CEO Nithin Kamath on X (formerly Twitter) has started a new discussion on how India"s tax rules affect startup behavior. Advertisment Kamath explained why many startups choose to spend heavily instead of showing profits. Read More: Gurugram Startup Eliminates Stress From People"s Life By Running Errands On Their Behalf – Clocks Rs 4.8 Cr In FY25 Nithin Kamath Says Tax Rules Push Startups to Burn Cash Kamath shared that when business owners take out profits as dividends, the total tax can go up to 52% — that includes 25% corporate tax and 35.5% personal tax. But if the money is earned through capital gains, the tax is only 14.95% (including cess). He wrote, “If you're an investor (especially a VC), the math is simple: reduce corporate tax by showing minimal profits or losses. Spend on acquiring users, build a growth narrative, and then sell shares at a higher valuation while paying much lower tax.” Kamath said this approach not only saves tax but also helps startups grow faster and push out smaller rivals. However, he added that it also makes these companies less stable, since they depend too much on outside money. He pointed out that India has very few merger and acquisition (M&A) options, so many startups look at IPOs as the only way for investors to exit. Kamath also said that while the government may have planned this system to encourage spending and expansion, it might have gone too far — creating firms that could suffer if the market slows down. Read More: Done with juggling between Ola, Uber, Rapido for cheap rides, entrepreneurs from BLR built an app to compare & book rides in one place Ashneer Grover Fires Back With a Simple Question Reacting to Kamath"s post, Ashneer Grover wrote, “Bhai – is logic se all investors should invest in a business and wait for returns as dividend only rather than selling and realising capital gain. Would Zerodha / any other broker still be in business then?” Grover"s point was clear — if everyone waited for dividends instead of selling shares, trading platforms and investors would hardly make any money. Their exchange has drawn attention to a larger issue: are India"s startups growing for real strength or just for higher valuations? The debate shows how tax design can shape how companies are built and how investors think about success. Read More: “Typing "I love you" never feels the same as saying it" - Meet Hyderabad founder who launches a voice-first app for real human connections"
