As Finance Minister Nirmala Sitharaman prepares to present the interim budget on February 1, the burgeoning edtech industry in India is on tenterhooks, anticipating fiscal policies that could shape the future of digital education.
With the ongoing digital revolution and the Covid-19 pandemic accelerating the adoption of online learning, industry stakeholders are hopeful for strategic initiatives to propel growth and innovation as the edtech industry and start-ups as a whole face the brunt of economic slowdown and funding crunch.
The industry is optimistic about potential tax incentives and benefits that may be announced in the interim budget. They say reduced Goods and Services Tax (GST) rates on digital educational content and services could make online learning more affordable, benefiting both students and edtech companies.
“We would like to appeal to the government to increase the education sector’s budget and reduce the GST slab from 18 percent to 5 percent on educational products and services. Our aim is to establish a strong foundation for the country’s children, particularly those from economically disadvantaged backgrounds,” one of the industry expert said.
Further, experts also anticipate tax breaks for Indian students who want to pursue education abroad but drop the plan due to the burden of loans.
“There’s a surge in Indian students applying for overseas education but there isn’t any tax relief on the repayment of the principal amount. Extending the 80E benefits to the principal amount will make education loans an attractive proposition for Indian households,” expert said.
In 2019, approximately 10.9 lakh Indian students pursued their education abroad, according to the OneStep Global-University Living report. This figure witnessed a 7 percent growth in 2022, escalating to around 13.24 lakh students. If the current growth rate of 15 percent sustains, the number of Indian students studying overseas is projected to soar to approximately 20 lakh by 2025.
For the larger start-up industry, he bats for focus on ESOPs (Employee Stock Ownership Plans).
“Start-up ecosystem in the last few years has contributed towards India’s growing economic boom, yet ESOPs (Employee Stock Ownership Plans) are still not considered a part of public market investments. Incentivising ESOPs with simpler and appropriate tax structures like shares would make it an attractive wealth creation opportunity and would also help start-ups attract and retain their talent,” he said.
Focus on specific tax breaks, digital infra
There are several education consultants focussed on research, specific skills and tier 2 and 3 markets that are hoping for tax incentives.
Another expert urged the government to introduce specific tax breaks and incentives for research and development (R&D) activities, particularly for those focusing on artificial intelligence (AI), machine learning (ML), and other emerging technologies.
“This could include weighted deductions, grants or co-funding initiatives. Create a dedicated edtech innovation fund to support research and development projects by early-stage and established companies,” he said.
Ralhan also anticipates extending the duration of income tax exemption under Section 80IAC for eligible edtech start-ups to at least 7-10 years, recognising their longer gestation period and impact creation timeline.
“Allow carry-forward of losses beyond the current seven-year limit for edtech start-ups, providing financial agility and encouraging risk-taking for innovative projects,” he added.
One of the primary expectations from the edtech industry is increased allocations for the development and enhancement of digital infrastructure. Reliable internet connectivity, especially in remote areas, remains a critical challenge.
The number of active internet users in India is expected to grow to 900 million from the current 759 million by 2025, according to a report by the Internet and Mobile Association of India (IAMAI) and KANTAR. An active internet user is defined as someone who accesses the internet at least once a month, and these 759 million people represent 52 percent of the country’s population.
Edtech companies are hopeful of strategic investments in improving internet accessibility, ensuring that students from all corners of the country can seamlessly access online educational content.
Another key area of interest for edtech companies is the government’s commitment to upskilling and reskilling the workforce. As the job market evolves rapidly, there is a growing need for continuous learning and skill development.
“Streamlining the operations and formalising the edtech sector through policies and regulations instils confidence among stakeholders, promoting a conducive environment for growth. Ultimately, these changes align with the national goal of creating a more responsive education system, equipping the workforce to meet the evolving demands of the job market in a knowledge-driven economy,” another industry expert said.