Introduction
I noticed this 03-Nov-25 tweet of Nithin Kamath (Zerodha). It’s got over 5,000 likes. Then, I noticed Ashneer Grover (BharatPe) drop a cheeky reply to Nithin Kamath’s tweet.
I watch startups intently. It’s my method of studying what to do and what not to do in enterprise. I believed, this Nithing Kamath’s tweet “wants a little bit of rationalization.”
Why? As a result of, I feel, not everybody will get the tax angle or VC video games behind it.
I’ll clarify Nithin’s primary level and why Ashneer’s sounds as if he’s not agreeing with Nithin Kamath. I’ll additionally share my take as a long-term investor on this subject.
Perceive What Nithin Kamath is Saying
When you take cash out of a enterprise as dividends, the efficient tax price is 52% (25% company tax + 35.5% on private revenue). By means of capital good points, it is simply 14.95% (with cess).
Why does this matter? Right here’s what it’s best to know if you happen to put money into IPOs.
When you’re an investor…
— Nithin Kamath (@Nithin0dha) November 3, 2025
He’s saying, taxes are pushing startups to burn cash as a substitute of constructing it.
Think about that you just begin a enterprise in India. You make some revenue. Now, if you wish to take that cash out and provides it to your self or buyers as “dividends”, the federal government hits you arduous.
- First, the corporate pays 25% tax on that revenue. I’m speaking about company tax, not dividend distribution tax (which stands abolished)
- Second, when it reaches your (buyers) pocket, you pay as much as 35.5% extra (together with extras like cess and surcharges). If somebody is in 20% or decrease tax bracket the 35.5% quantity will come down.
So you possibly can see, the efficient whole of tax paid on the dividend cash is about 50% plus.
What he’s making an attempt to say?
When you don’t pay out earnings (as dividends to companions / buyers / shareholders), you might be retaining more cash. This cash can then be used to develop the enterprise massive. How? By the best way of increasing & modernizing operations, paying off debt, spending on commercials, acquisitions, and so forth.
All these steps will make the the corporate earn more cash (income, revenue, and margins). As the corporate’s EPS (Incomes Per Share) will develop, it’ll make the share worth rise as properly.
A shareholder who has held on to his shares for say 5-7 years or extra, if he now promote his holdings, his tax burden shall be method decrease. Simply 14.95% on these “capital good points” (the revenue from promoting shares).
Nithin says this math is why enterprise capitalists (VCs, the big-money buyers in startups) push founders to “burn money.” Not on cool stuff like analysis. The cash is usually for consumer adverts and hype to point out “explosive development.” Why?
- Decrease taxes for VCs: By protecting earnings low (or displaying losses), the corporate skips that 25% company tax. VCs then promote their shares at IPO time and pay simply 15% tax. It’s a sort of authorized hack which Nithin known as as “tax arbitrage.”
- Greater payouts: Quick development tales get sky-high costs. A startup with simply Rs. 100 crore income however doubling yearly? Valued at 10-15 instances that income. Quite the opposite, a gradual, worthwhile enterprise however which is simply rising at 20% a 12 months will get solely 3-5 instances valuation. Therefore, this manner VCs win 3x extra on their exit.
- Kills competitors: One other perspective is that, In case your rival is burning money to steal customers, you both be part of the burn or lose market share. In such a market, if you happen to select to do the old-school method, VC’s in all probability won’t put money into your startup.
These are the three the explanation why as of late, startups choose to quick development over profitability. Their profit is market share and VC’s additionally get their desired exits.
Nithin’s warning
Nithin says, any such focus solely on development and VC’s exit builds weak corporations.
After 7-8 years, VCs push to money out. In India, as Mergers and Acquisitions (M&A) of startups is just not so frequent, therefore, the one method left for the startup and VC’s is to hurry to IPO. That is the explanation why as of late we’re seeing so many recent listings as of late.
Many of the startups are dropping cash. One massive drop out there and all these corporations will crumble.
The federal government may need corporations to spend (not hoard money). However Nithin thinks that the entire setup is off-balance. It’s rewarding flashy development over robust, lasting ones.
So that is all about what I feel Nithin was making an attempt to say. Now comes our “Rise and Fall” host (pun meant), the OG Ashneer Grover.
What’s the takeaway from Nithin’s put up?
“Indian Taxes is the offender. Why? As a result of taxes make VCs deal with startups like short-term bets. Not as long run worth creator like Tata’s or Mahindra’s. Therefore, we as buyers who love IPOs should look ahead to actual power, not simply development fairy tales.
What was Ashneer’s Reply?
“Bhai [bro] – is logic se all buyers ought to put money into a enterprise and anticipate returns as dividend solely reasonably than promoting and realising capital acquire. Would Zerodha / some other dealer would nonetheless be in enterprise then?“
Ashneer, I feel, is definitely making an attempt to poke enjoyable, proper? His takeaway from this tweet is that “solely development focus is dangerous for corporations.”
He’s utilizing Nithin’s personal logic backward. He’s saying, if dividends have been the recent alternative (regardless of the 52% tax chunk), buyers would purchase shares and sit tight. They may purchase after which anticipate regular payouts (as if shares are like a financial savings account).
No promoting, no buying and selling frenzy.
That is the place Ashneer’s feedback turns into fascinating.
If all buyers begin suppose like dividend buyers, what is going to occur to an organization like Zerodha?
Zerodha is Nithin’s personal stock-trading app. It could begin amassing mud. Why? As a result of no frequent buying and selling means much less commissions from for Zerodha.
Brokers like Zerodha thrive on that motion – IPO hype, frequent share trades, capital good points chases, and so forth.
Ashneer’s saying: “Nithin, your level is spot-on, however flip it and you can see that the system needs this chaos. With out capital good points luring everybody to commerce, the market (and what you are promoting) will fall asleep.”
It’s Ashneer’s witty technique to remind Nithin that everybody’s taking part in the identical recreation, taxes or not. Nobody’s harmless.
What’s My Perspective?
Each are proper in their very own methods. However I’m extra inclined to suppose like Nithin Kamath.
Having mentioned that, additionally it is true that it’s sort of paradoxical for Nithin to advertise orthodox enterprise model, as a result of his personal enterprise thrives on “frequent buying and selling.”
Why is Nithin proper? Test the numbers he shares. That 52% tax versus 15% isn’t simply discuss; it’s clear math that pushes for fast development and quick gross sales.
VC-funded massive startups go public with flashy gross sales numbers however massive losses. They shine vibrant at launch, however look nearer and you can see that they’ve a razor skinny protection.
As somebody who holds shares for years, I choose regular earnings. They present an organization that runs by itself, not on VC bosses pulling strings for fast exits.
What about Zerodha? It’s a firm that has made cash immediately, with out wild spending. That’s the way it grows slowly however absolutely.
Nithin’s alert about toughness is spot on (for me). Development with out earnings is like taking loans from the longer term to have enjoyable now. It’s okay for VCs as a result of they’ll seize their money and go. However for us protecting shares after an IPO? It’s an enormous danger.
Ashneer’s remark (joke) present us the opposite perspective. If the federal government will change taxes to spice up dividends, it’ll result in inventory buying and selling slowing down. This may harm the businesses like Zerodha.
So what Ashneer is making an attempt to say is that, we want higher stability. Maybe restrict these excessive costs or tax spending properly (like favoring analysis over adverts).
However in the present day, I discover Nithin’s recommendation extra nearer to me. Buyers (VCs and us as properly) should skip the dream of 10x fast wins.
In the case of making long run wealth, we should go for previous boring guidelines. What’s the previous method? Survive robust instances and repay for individuals who wait to attend even longer (dividends).
Have a cheerful investing.
