Introduction
I saw this 03-Nov-25 tweet of Nithin Kamath (Zerodha). It has got over 5,000 likes. Then, I saw Ashneer Grover (BharatPe) drop a cheeky reply to Nithin Kamath’s tweet.
I watch startups closely. It is my way of learning what to do and what not to do in business. I thought, this Nithing Kamath’s tweet “needs a bit of explanation.”
Why? Because, I think, not everyone gets the tax angle or VC games behind it.
I’ll explain Nithin’s main point and why Ashneer’s sounds as if he is not agreeing with Nithin Kamath. I’ll also share my take as a long-term investor on this topic.
Understand What Nithin Kamath is Saying
If you take money out of a business as dividends, the effective tax rate is 52% (25% corporate tax + 35.5% on personal income). Through capital gains, it's just 14.95% (with cess).
— Nithin Kamath (@Nithin0dha) November 3, 2025
Why does this matter? Here’s what you should know if you invest in IPOs.
If you're an investor…
He is saying, taxes are pushing startups to burn money instead of making it.
Imagine that you start a business in India. You make some profit. Now, if you want to take that money out and give it to yourself or investors as “dividends”, the government hits you hard.
- First, the company pays 25% tax on that profit. I’m talking about corporate tax, not dividend distribution tax (which stands abolished)
- Second, when it reaches your (investors) pocket, you pay up to 35.5% more (including extras like cess and surcharges). If someone is in 20% or lower tax bracket the 35.5% number will come down.
So you can see, the effective total of tax paid on the dividend money is about 50% plus.
What he is trying to say?
If you don’t pay out profits (as dividends to partners / investors / shareholders), you are retaining more money. This money can then be used to grow the business big. How? By the way of expanding & modernizing operations, paying off debt, spending on advertisements, acquisitions, etc.
All these steps will make the the company earn more money (revenue, profit, and margins). As the company’s EPS (Earning Per Share) will grow, it will make the share price rise as well.
A shareholder who has held on to his shares for say 5-7 years or more, if he now sell his holdings, his tax burden will be way lower. Just 14.95% on those “capital gains” (the profit from selling shares).
Nithin says this math is why venture capitalists (VCs, the big-money investors in startups) push founders to “burn cash.” Not on cool stuff like research. The money is mostly for user ads and hype to show “explosive growth.” Why?
- Lower taxes for VCs: By keeping profits low (or showing losses), the company skips that 25% corporate tax. VCs then sell their shares at IPO time and pay just 15% tax. It is a kind of legal hack which Nithin called as “tax arbitrage.”
- Bigger payouts: Fast growth stories get sky-high prices. A startup with just Rs. 100 crore revenue but doubling every year? Valued at 10-15 times that revenue. On the contrary, a steady, profitable business but which is only growing at 20% a year will get only 3-5 times valuation. Hence, this way VCs win 3x more on their exit.
- Kills competition: Another perspective is that, If your rival is burning cash to steal users, you either join the burn or lose market share. In such a market, if you choose to do the old-school way, VC’s probably will not invest in your startup.
These are the three reasons why these days, startups prefer to fast growth over profitability. Their benefit is market share and VC’s also get their desired exits.
Nithin’s warning
Nithin says, this type of focus only on growth and VC’s exit builds weak companies.
After 7-8 years, VCs push to cash out. In India, as Mergers and Acquisitions (M&A) of startups is not so common, hence, the only way left for the startup and VC’s is to rush to IPO. This is the reason why these days we are seeing so many fresh listings these days.
Most of the startups are losing money. One big drop in the market and all these companies will fall apart.
The government might want companies to spend (not hoard cash). But Nithin thinks that the whole setup is off-balance. It’s rewarding flashy growth over tough, lasting ones.
So this is all about what I think Nithin was trying to say. Now comes our “Rise and Fall” host (pun intended), the OG Ashneer Grover.
What is the takeaway from Nithin’s post?
“Indian Taxes is the culprit. Why? Because taxes make VCs treat startups like short-term bets. Not as long term value creator like Tata’s or Mahindra’s. Hence, we as investors who love IPOs must watch for real strength, not just growth fairy tales.
What was Ashneer’s Reply?
“Bhai [bro] – 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 would still be in business then?“
Ashneer, I think, is actually trying to poke fun, right? His takeaway from this tweet is that “only growth focus is bad for companies.”
He is using Nithin’s own logic backward. He is saying, if dividends were the hot choice (despite the 52% tax bite), investors would buy shares and sit tight. They will buy and then wait for steady payouts (as if shares are like a savings account).
No selling, no trading frenzy.
This is where Ashneer’s comments becomes interesting.
If all investors start think like dividend investors, what will happen to a company like Zerodha?
Zerodha is Nithin’s own stock-trading app. It would start collecting dust. Why? Because no frequent trading means less commissions from for Zerodha.
Brokers like Zerodha thrive on that action – IPO hype, frequent share trades, capital gains chases, etc.
Ashneer’s saying: “Nithin, your point is spot-on, but flip it and you will find that the system wants this chaos. Without capital gains luring everyone to trade, the market (and your business) will go to sleep.”
It’s Ashneer’s witty way to remind Nithin that everyone’s playing the same game, taxes or not. No one’s innocent.
What’s My Perspective?
Both are right in their own ways. But I’m more inclined to think like Nithin Kamath.
Having said that, it is also true that it is kind of paradoxical for Nithin to promote orthodox business style, because his own business thrives on “frequent trading.”
Why is Nithin right? Check the numbers he shares. That 52% tax versus 15% isn’t just talk; it’s clear math that pushes for quick growth and fast sales.
VC-funded big startups go public with flashy sales numbers but big losses. They shine bright at launch, but look closer and you will find that they have a razor thin defense.
As someone who holds stocks for years, I prefer steady earnings. They show a company that runs on its own, not on VC bosses pulling strings for quick exits.
What about Zerodha? It is a company that has made money right away, without wild spending. That’s how it grows slowly but surely.
Nithin’s alert about toughness is spot on (for me). Growth without profits is like taking loans from the future to have fun now. It is okay for VCs because they can grab their cash and go. But for us keeping shares after an IPO? It’s a big risk.
Ashneer’s comment (joke) show us the other perspective. If the government will change taxes to boost dividends, it will lead to stock trading slowing down. This will hurt the companies like Zerodha.
So what Ashneer is trying to say is that, we need better balance. Perhaps limit those high prices or tax spending wisely (like favoring research over ads).
But today, I find Nithin’s advice more closer to me. Investors (VCs and us as well) must skip the dream of 10x quick wins.
When it comes to making long term wealth, we must go for old dull rules. What is the old way? Survive tough times and pay off for those who wait to wait even longer (dividends).
Have a happy investing.
