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What is Spacetech and What does it comprise? 

Space technology, often shortened to spacetech, refers to the application of engineering and technological advancements for the exploration and utilization of space. It encompasses a vast array of disciplines, from designing and launching satellites to developing advanced propulsion systems for efficient space travel. Ground infrastructure, robotics, space situational awareness, and even life sciences for human spaceflight all fall under the umbrella of space-tech.^[1]

Spacetech comprises:

• Upstream Segment: activities involving design, development and production processes necessary for creating space infrastructure and technology. This additionally encompasses material supply to the integration and launch of space vehicles, ensuring successful deployment and operation of spacecraft and satellites.
• Downstream Segment: activities involving utilization and application of space-based data and services, focusing on the development and deployment of satellite-based products for various sectors.
• Auxiliary Segment: activities related to space insurance services, space education, training and outreach programs, collaborations and technology transfers, and commercialization of spin-off products. 

The space technology sector in India operates under a comprehensive legal and regulatory framework designed to promote innovation, facilitate private sector participation, and protect national interests. This framework is governed by several key regulatory bodies and policies that ensure the sector’s growth and compliance with both national and international standards. This handy overview aims to provide a quick reference guide to understand the complex legal and regulatory framework governing India’s space sector. 

Key Regulatory Bodies of Spacetech in India

Key Legislations and Policies

International Treaties

India is a signatory to several key space treaties, ensuring compliance with international norms for peaceful space exploration:

Contractual Agreements for a Space Company in India

Establishing and operating a space company in India involves various contractual agreements ^[2] to protect intellectual property, and manage commercial relationships effectively.

Intellectual Property (IP) for Space Tech Companies in India

The legal framework for Intellectual Property Rights (IPR) in India provides robust protection for space tech companies by protecting innovations, fostering creativity, and encouraging investment. The Indian government has established a legal framework to safeguard IPR in the space industry, ensuring that companies can secure and monetize their innovations.

S. No.	Types of IP	Description	Example
1	Trademark	Function: Companies can register trademarks for their brands, logos, and other identifiers. This helps in building brand recognition and protecting against unauthorized use or infringement. Registration: Trademarks registration is optional but advisable, and once granted will be valid for 10 years, renewable every decade.	Names, word-marks, logos, symbols, tag-lines, short sound marks, and more.
2	Copyright	Function: Space tech companies can protect their software, technical manuals, and marketing materials under copyright law. Prevents unauthorized reproduction and distribution of proprietary content. Registration: The creator owns the copyright 60 years from creation before the work becomes public.	Software code, satellite imagery, technical documentation, mission designs, manuals, and more. Example – Satellite mission documentation, control software
3	Patent	Function: Space tech companies can file patents for new inventions related to space technology, including satellite components, launch vehicles, and software algorithms.  Registration: The Act provides protection for 20 years from the date of filing, allowing companies to exclusively exploit their inventions.	Rocket designs, propulsion systems, satellite components, drastically unique or different technology, and more. Example – ISRO’s cryogenic engine patents
4	Design	Function: Companies can register designs for components and products used in space technology, such as satellite bodies and ground station equipment. Registration: The Designs Act offers protection for registered designs enumerated as follows:  Initial validity: A registered design certificate is valid for 10 years from the date of registration. Extension: The protection can be extended for an additional 5 years by filing an application and paying the prescribed fee.	Satellite structures, rocket exterior designs, space module configurations, and more. Example – Exterior design of the GSLV Mk III rocket
5	Trade Secret	Function: Trade secrets are confidential, commercially valuable information known to a limited group and protected by the rightful owner through reasonable measures,  typically including confidentiality agreements. Provisions: Although there is no specific legislation for trade secrets in India, they are protected under common law principles of confidentiality and contract law. Companies can use non-disclosure agreements (NDAs), confidentiality clauses, and other contractual arrangements to protect their trade secrets.	Manufacturing processes, proprietary algorithms, satellite data processing techniques, and more. Example- Proprietary algorithms for satellite data compression and transmission

India’s Foreign Direct Investment (FDI) Policy in the Space Sector

In line with the vision of the Indian Space Policy 2023 and further to the Union Budget 2024-25, the Foreign Exchange Management (Non-Debt Instrument) Rules, 2019 (“NDI Rules”) were amended by way of Gazette notification dated 16 April 2024^[3] to prescribe liberalized FDI thresholds for various sub-sectors/activities in India’s spacetech ecosystem. This is seen as a welcome change as the erstwhile policy was restrictive, requiring significant government oversight and limiting avenues for private sector participation. 

FDI Policy and amendment to NDI Rules, 2024

Existing foreign investment limits in the space sector are provided under Chapter 5 of the Consolidated FDI Policy Circular of 2020^[4], which are yet to be updated to reflect the amendment to the NDI Rules. The NDI Rules recognize “space” as a sector in itself in Schedule I, and the crux of the policy lies in the categorization of space-related activities and the corresponding FDI thresholds. Here’s a breakdown of the key categories and their investment limits:

The investee entity is required to adhere to sectoral guidelines issued by the Department of Space from time to time. The amended NDI Rules also incorporate definitions for the purpose of identifying the applicable FDI threshold and route:

(i) “Satellites – Manufacturing and Operation”: end-to-end manufacturing and supply of satellite or payload, establishing the satellite systems including control of in-orbit operations of the satellite and payloads;

(ii) “Satellite Data Products”: reception, generation or dissemination of earth observation or remote sensing satellite data and data products including Application Interfaces (API);

(iii) “Ground Segment”: supply of satellite transmit or receive earth stations including earth observation data receive station, gateway, teleports, satellite Telemetry, Tracking and Command (TTC) station and Satellite Control Centre (SCC), etc.;

(iv) “User Segment”: supply of user ground terminals for communicating with the satellite, which are not covered in Ground Segment;

(v) “Launch Vehicles and Associated Systems or Sub-systems”: vehicle and its stages or components that is designed to operate in or place spacecraft with payloads or persons, in a sub-orbital trajectory, or earth orbit or outer space;

(vi) “Manufacturing of components and systems or sub-systems for satellites Ground Segment and User Segment”: comprises the manufacture and supply of the electrical, electronic and mechanical components systems or sub-systems for satellites, Ground Segment and User Segment.

Gaps in the FDI Policy 2024 for Space-Tech

The amendments to the NDI Rules proposed to also be carried out to the existing FDI Policy 2020 aim to liberalize the spacetech sector, but certain gaps and ambiguities still exist that need to be addressed for it to be fully effective.

1. Requirement to Comply with Sectoral Guidelines: The policy mandates that investee entities must comply with sectoral guidelines issued by the Department of Space, which counteracts the intended liberalization.
2. Clarity on “Satellites – Manufacturing & Operation”: The term “satellites – manufacturing & operation” does not explicitly cover spacecrafts that may not be categorized as satellites, creating potential ambiguity.
3. Definition of “Satellite Data Products”: The term “satellite data products” conflicts with the Geospatial Guidelines, which allow up to 100% foreign investment under the automatic route for similar data products, which might lead to regulatory overlaps and conflicts.
4. Overlapping Activities: Companies engaged in activities spanning multiple categories (e.g., manufacturing components for both satellites and launch vehicles) must restrict foreign investments to the stricter category thresholds. This may necessitate business restructuring to comply with the new regulations.
5. Grandfathering Existing Investments: The policy does not clearly address how existing investments, made under previous interpretations of the FDI rules, will be treated. Companies that received investments without explicit government approval may  require post-facto government approval.

Concluding Thoughts

Given the national contribution advancements in space tech bring about, it is natural that a degree of government oversight is still built into the legal and regulatory framework. While the amendments to the NDI Rules signify an exciting turn of events for the space tech sector in India, the significant nature of it is still required to be captured across applicable legislations. Further, the proposed 2024 FDI policy does not completely do away with the requirement to comply with sectoral guidelines, or provide complete clarity on critical terms commonly used in the industry. Further, the nature of overlapping business activities could trigger restructuring of businesses, with no clarity provided on grandfathering existing investments. These are likely to be the subject of any clarificatory orders from the Ministry of Finance (Department of Economic Affairs).

References:

[1] https://it.telangana.gov.in/initiatives/spacetech

[2] In addition to the above agreements, space companies may also need to enter into other agreements, such as marketing agreements, sponsorship agreements, and international collaboration agreements. The specific agreements that a space company needs to enter into will depend on its specific business model and operations.

[3] https://egazette.gov.in/WriteReadData/2024/253724.pdf

[4] https://dpiit.gov.in/sites/default/files/FDI-PolicyCircular-2020-29October2020_0.pdf

In recent years, the SME IPO listing in India has emerged as a vital avenue for small and medium enterprises (SMEs) to access capital and enhance their market presence. With a growing number of platforms facilitating these listings, SMEs can now tap into public funding more easily than ever. This blog will explore the various platforms available for SME IPOs, the eligibility criteria that businesses must meet, and the step-by-step process involved in listing on the stock exchange. Understanding these elements is crucial for entrepreneurs looking to leverage the benefits of going public and drive their growth in a competitive landscape.

What are Small and Medium Enterprises (SME)?

Small and Medium enterprises (SMEs) are classified as such through the Micro, Small and Medium Enterprises Development Act, 2006, wherein eligibility thresholds are prescribed for enterprises engaged in manufacture or production of goods in specified industries; or enterprises providing or rendering of services, as captured below:

Note: When calculating the investment in plant and machinery, the cost of pollution control, research and development, industrial safety devices and such other items as may be specified, by notification, shall be excluded.

What is an IPO?

Initial Public Offering (IPO) is the first invitation by a company to have their equity securities purchased by the general public. This allows the company to raise capital by inviting public investment into the company. Given that the general public is involved in the fund raising process, the IPO is subject to strict scrutiny and exhaustive regulatory compliances. This is typically undertaken by companies that have a large and established presence, and with a paid up share capital of at least INR 10,00,00,000. Such companies would be traded directly on the platforms hosted by the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE), and are required to strictly comply with regulations prescribed by the Securities and Exchange Board of India (SEBI) from time to time.

Why should SMEs explore IPO?

SMEs are the backbone of the Indian economy and play a crucial role in job creation, innovation, and overall economic growth. These companies often face challenges when it comes to raising capital for growth as they have limited access to capital. In this context, an IPO is extremely beneficial to an SME:

• Capital Injection: Public offerings attract a broader pool of investors, enabling SMEs to raise significant funds for growth initiatives like expanding operations, investing in research and development, or acquiring new technologies.
• Enhanced Credibility: A successful listing serves as a public validation of a company’s financial health and governance practices. This newfound credibility can attract valuable partnerships, potential acquisitions, and a wider customer base.
• Increased Liquidity: Listing on an exchange creates a secondary market for the company’s shares. This allows existing investors to easily exit their positions and attracts new investors seeking participation in the company’s future. Improved liquidity benefits both the company and its shareholders.

What are IPO Listing Platforms?

Traditional listing platforms India as hosted on the BSE and NSE are subject to exhaustive regulatory compliances, including multiple layers of approval by SEBI,  BSE and/or NSE (as chosen by the company). This can contribute to the inaccessibility of capital leading to the emergence of SME IPO Listing Platforms as a game-changer. 

As on date, two IPO Listing Platforms are hosted in India exclusively for SMEs: 

• BSE SME Platform: Established by the Bombay Stock Exchange (BSE), this platform offers a dedicated marketplace for SMEs to list their shares. It provides a comprehensive support system, including guidance on regulatory requirements and listing procedures.
• NSE Emerge: This platform, operated by the National Stock Exchange of India (NSE), caters specifically to the needs of growing companies. It offers a transparent and efficient listing process, along with educational resources and investor outreach programs.

Operating in accordance with relaxations on IPO processes prescribed for SMEs by SEBI, these platforms create an opportunity for SMEs to take advantage of the expedited process and increase their access to capital. 

Why IPO Listing Platforms?

To avail the core advantages of going for an IPO, SME IPO Listing Platforms offer a more streamlined and cost-effective path to going public compared to the traditional IPO route. Reduced regulatory requirements and simplified processes make it easier for promising SMEs to access the capital markets.

In the following sections, we’ll delve deeper into the specifics of these platforms, exploring the eligibility criteria for listing and also address potential challenges and considerations for SMEs contemplating this exciting funding option.

These platforms operate on leading stock exchanges and provide a streamlined process for SMEs to go public.  By listing their shares on these platforms, SMEs can:

• Raise capital: Public investors can purchase shares in the company, injecting much-needed funds for expansion and development.
• Enhanced credibility: A public listing demonstrates a company’s financial transparency and stability, potentially attracting more business opportunities and partnerships.
• Increased liquidity: Shareholders can easily buy and sell shares, providing greater liquidity for the company’s stock.

Eligibility Criteria for Listing

To be eligible for listing on an SME IPO Platform, companies must meet specific criteria established by the Securities and Exchange Board of India (SEBI) and the respective stock exchange.  Here’s a general overview:

• Company Type: The company must be a Public Limited Company incorporated under the Companies Act, 1956 or 2013.
• Track Record: A minimum track record of operations, typically 3-5 years, is often required.
• Financial Performance: The company must demonstrate consistent profitability and a healthy financial position. Specific requirements for minimum net worth and positive cash flow may apply.
• Post-Issue Capital: The paid-up capital of the company after the IPO should typically fall within a specific range, often between Rs. 1 crore and Rs. 25 crore.

Choosing the Right SME IPO Listing Platform

While both BSE SME and NSE Emerge offer avenues for SME growth, selecting the optimal platform requires careful consideration of several factors:

• Industry Focus: A platform with a strong presence in the target sector can provide access to more targeted investors, potentially leading to a more successful IPO.

• Investor Base: Analyze the existing investor base of each platform. If the company caters to a niche market, choose the platform that attracts investors interested in similar sectors. This increases the likelihood of finding investors who understand your business model and are more likely to invest.

• Listing Fees: Compare the listing fees and ongoing maintenance charges associated with each platform. While cost shouldn’t be the sole deciding factor, understanding the financial implications is crucial. Choose the platform that offers a competitive fee structure while aligning with the budget.

• Support Services: Evaluate the level of support and guidance offered by each platform. Some platforms provide comprehensive assistance with the listing process, regulatory compliance, and investor outreach. Choose the platform that offers the level of support that best suits the needs of the company and internal resources.

By carefully considering these factors, SMEs can make an informed decision about which platform best positions them for a successful IPO and sustainable growth.

The SME Listing Process: A Step-by-Step Breakdown

The process of listing on an SME IPO Platform involves several crucial steps:

1. Appointment of Advisors:

• Merchant Banker: This financial institution acts as the lead manager, handling the entire IPO process, from pre-IPO planning to investor outreach and post-listing activities.
• Legal Counsel: An experienced lawyer ensures compliance with all legal and regulatory requirements throughout the listing process.
• Statutory Auditor: An independent auditor conducts a thorough audit of the company’s financial statements to provide an impartial assessment of its financial health.

2. Preparation of Documents:

• Draft Red Herring Prospectus (DRHP): This comprehensive document outlines the company’s financial position, business plan, future prospects, and details of the proposed IPO. It serves as a crucial information source for potential investors.

3. Regulatory Approvals:

• SEBI: The Securities and Exchange Board of India is the primary regulator for the Indian stock market. Seeking approval from SEBI ensures compliance with all relevant regulations and protects investor interests.
• Stock Exchange: After receiving SEBI approval, the company must obtain approval from the chosen SME IPO Platform (BSE SME or NSE Emerge) for listing.

4. Pre-IPO Due Diligence:

• An appointed intermediary, typically the merchant banker, conducts a thorough due diligence process to verify the information provided in the DRHP and assess the company’s financial health and future prospects. This protects investors and ensures accurate information dissemination.

5. IPO Launch and Marketing:

• Once all approvals are obtained, the IPO is officially launched. This involves intensive marketing efforts to attract potential investors. Roadshows, presentations, and targeted marketing campaigns are all essential during this stage.

6. Listing and Trading:

• Upon successful completion of the IPO, the company’s shares begin trading on the chosen SME platform. This marks a significant milestone, providing the company with access to public capital and increased visibility.

Challenges and Considerations for SME IPOs

While SME Listing Platforms offer a promising route for growth, navigating the process and maintaining success requires careful consideration of potential hurdles:

• Market Volatility: The stock market is inherently volatile. Fluctuations in market sentiment can significantly impact the success of an IPO. Careful timing and a well-defined marketing strategy can help mitigate these risks.

• Regulatory Compliance: Maintaining ongoing compliance with SEBI regulations requires expertise and dedicated effort. Partnering with experienced legal counsel ensures adherence to all regulations and protects the company from potential penalties.

• Investor Relations: Building and nurturing strong relationships with investors is crucial for long-term success. Regular communication, transparent reporting, and addressing investor concerns are key to fostering trust and confidence. Strong investor relations can lead to continued support and enhanced share value.

NSE Emerge – Criteria For Listing

BSE SME – Criteria For Listing

Conclusion

In India, SME IPO listing platforms have become a game-changer for small and medium enterprises (SMEs) seeking to scale new heights. These platforms act as launchpads, providing SMEs with much-needed capital to fuel innovation, expand operations, and achieve their full potential. This, in turn, injects fresh dynamism into the Indian economy. Investors also benefit immensely, gaining access to a pool of promising young companies with the potential for explosive growth. The Indian government’s active support for SME IPOs, coupled with the continuous refinement of these listing platforms, paints a very optimistic picture for the future. However, navigating this exciting space isn’t without its challenges. SME IPOs often come with stricter listing requirements and lower liquidity compared to established main boards. Additionally, for investors, careful due diligence is paramount before venturing into these potentially volatile, yet highly rewarding, investment opportunities. By fostering a responsible investment culture and addressing existing challenges, India can ensure that its SME IPO market continues to thrive, propelling the nation’s economic growth for years to come.

FAQs on SME IPO Listing

1. What is an SME IPO?
An SME IPO is an Initial Public Offering specifically for Small and Medium Enterprises. It allows SMEs to raise capital by inviting public investment, helping them expand, improve liquidity, and enhance credibility.

2. What are SME IPO listing platforms?
SME IPO listing platforms are specialized stock exchange segments in India—like the BSE SME Platform and NSE Emerge—that cater specifically to SMEs. These platforms offer a more streamlined and cost-effective way for smaller companies to go public.

3. Why should an SME consider going public?
Going public through an IPO allows SMEs to:

• Access a broader pool of capital
• Increase brand visibility and credibility
• Provide liquidity for existing investors
• Open up new avenues for partnerships and growth

4. How do SMEs benefit from listing?
SMEs gain easier access to capital, increased visibility, and potentially higher valuations.

5. What benefits do investors gain from SME IPOs?
Investors in SME IPO benefit by:

• Accessing early-stage investment opportunities in high-growth companies
• Potentially realizing higher returns if the SME succeeds post-listing
• Diversifying their portfolios with promising companies in various sectors

6. Are there any challenges in SME IPO Listing?
SME IPOs often have stricter listing requirements, lower liquidity, and involve higher risk due to the young companies.

7. Are there any specific requirements for technology startups listing on NSE Emerge?
Yes, technology startups on NSE Emerge must:

• Have positive annual revenue of at least INR 10 crore
• Show annual growth in users, revenue, or customer base of at least 20%
• Ensure that 10% of pre-issue capital is held by qualified institutional buyers or a recognized angel investor network

8. How does the government support SME IPOs?
The government establishes regulations, offers tax benefits, and promotes awareness for both SMEs and investors.

9. What should investors consider before investing?
Conduct thorough due diligence on the company, understand the inherent risks, and invest within their risk tolerance and long-term goals.

Introduction

Reason for these Cyber Security Directions

In an increasingly digital world, the threats posed by cyberattacks have become a significant concern for organizations worldwide. Recognizing the urgency of the situation, on April 28, 2022, the Indian Computer Emergency Response Team (“CERT-IN”) introduced new directives that mandate all cybersecurity incidents be reported within a stringent timeframe. This move marks a significant shift in India’s approach to cybersecurity, underscoring the need for rapid response and heightened vigilance.

Scenario before these Directions

Prior to these directives, many organizations struggled with limited visibility into cybersecurity threats, leading to incidents that were either inadequately reported or overlooked altogether. The lack of comprehensive analysis and investigation of these incidents often left critical gaps in understanding and mitigating cyber risks. With the implementation of this directive, organizations are now compelled to reassess their internal cybersecurity protocols, ensuring that robust measures are in place to meet these new reporting requirements.

Highlights of the CERT-IN Directions

Applicability

These directions cover all organisations that come within the purview of the Information Technology Act, 2000. 

Individuals, Enterprises, and VPN Service Providers are excluded from following these directions. 

Types of Incidents to be Reported

The directions provide an exhaustive list of incidents that need to be reported within the timeframe mentioned (refer Annexure I). In addition to these directions, the entities to whom these directions are applicable also need to continue following Rule 12 of the Information Technology (The Indian Computer Emergency Response Team and Manner of Performing Functions and Duties) Rules, 2013, and report the incidents as elaborated therein. 

Timelines and How to Report

Timeline. All incidents need to be reported to CERT-IN within 6 (Six) hours from the occurrence of the incident or of the incident being brought to the respective Point of Contact’s (“POC”) notice. 

Reporting. Incidents can be reported to CERT-IN via Email at ‘[email protected]’, over Phone at ‘1800-11-4949’ or via Fax at ‘1800-11-6969’. Further details regarding reporting and the format to be followed are uploaded at ‘www.cert-in.org.in’.

Designated Point of Contact (POC)

The reporting entities are mandated to designate a POC to interface with CERT-IN. All communications from CERT-IN seeking information and providing directions for compliance shall be sent to the said POC.

Maintenance of Logs

The directions mandate the reporting entities to enable logs of all their information and communications technology systems (“ICT”) and maintain them securely for a period of 180 days. The ambit of this direction is broad and has potential of bringing in such entities who do not have physical presence in India but deal with any computer source present in India. 

ICT Clock Synchronization

Organizations are required to synchronize the clocks of all their ICT systems by connecting to the Network Time Protocol (“NTP”) Server provided by the National Informatics Centre (“NIC”) or the National Physical Laboratory (“NPL”), or by using NTP servers that can be traced back to these sources.

The details of the NTP Servers of NIC and NPL are currently as follows:

NIC – ‘samay1.nic.in’, ‘samay2.nic.in’

NPL – ‘time.nplindia.org’

However, the government has provided some relief, that not all companies are required to synchronize their system clocks with the time provided by the NIC or the NPL. Organizations with infrastructure across multiple regions, such as cloud service providers, are permitted to use their own time sources, provided there is no significant deviation from the time set by NPL and NIC.

Challenges Faced and Recommendations

Challenges

• Limited Infrastructure and Resources: Many companies, especially tech startups may struggle to develop the necessary capabilities for large-scale data collection, storage, and management needed to report incidents within a six-hour timeframe.
• Stringent Guidelines compared to International Standards: For example, Singapore’s data protection laws require cyber breaches to be reported within three days, which aligns with the General Data Protection Regulation (GDPR).
• Increasing complexity of Cybercrime Detection: Identifying cybersecurity breaches can take days or even months. Additionally, the new guidelines have expanded the list of reportable incidents from 10 to 20, now including attacks on IoT devices. Currently, many organizations do not have an integrated framework that can monitor breaches across different platforms and devices, making it even more challenging to detect and report incidents.

Recommendations to comply with the 6 hours Timeframe

• Reassess Practices and Procedures: Organisations, especially tech startups should review and update their breach reporting protocols to align with CERT-IN directions. This includes evaluating breach severity, clarifying reporting responsibilities among involved parties, and planning for non-compliance risks. 
• Enhance Organizational Capabilities: Startups need to strengthen their ability to quickly identify and report cyber breaches. This includes training staff, conducting regular security audits, and managing personal device use. Given their limited resources, robust cybersecurity practices are vital for startups to protect against attacks and ensure their growth.
• Enable and Maintain Logs: CERT-IN requires organizations to enable and maintain logs. Startups should carefully select which logs to maintain based on their industry to ensure they can promptly identify and report cyber incidents, staying compliant with the reporting timeframe.

Consequences for Non-compliance

• Failure to comply with the directions can result in imprisonment for up to 1 year and/ or a fine of up to INR 1 Crore (approximately USD 1,20,000).  
• Other penalties under the IT Act may also apply, such as the confiscation of the involved computer or computer system.  
• If a company commits the offence, anyone responsible for the company’s operations at the time will also be liable. Furthermore, if the contravention occurred with the consent, involvement, or neglect of a director, manager, secretary, or other officer, that individual will also be considered guilty and subject to legal action.

Conclusion

The CERT-IN Directions issued on 28th April 2022 mark a significant step towards strengthening India’s cybersecurity framework. These directions introduce stringent reporting timelines, enhanced data retention requirements, and new compliance obligations for service providers, intermediaries, and other key entities. By mandating swift reporting of cyber incidents within 6 hours and enforcing strict penalties for non-compliance, CERT-IN aims to bolster the security and trustworthiness of India’s digital infrastructure. The intention behind the introduction of these measures is laudable but from a compliance point of view, the direction can be overreaching and may not be the most efficient manner of dealing with cybersecurity threats. 

Annexure

Types of Incidents to be reported include:

• Attacks or malicious/suspicious activities affecting systems/servers/software/applications related to Artificial Intelligence and Machine Learning.
• Targeted scanning/probing of critical networks/systems.  
• Compromise of critical systems/information.  
• Unauthorised access of IT systems/data. 
• Defacement of website or intrusion into a website and unauthorised changes such as inserting malicious code, links to external websites etc.  
• Malicious code attacks such as spreading of virus/worm/Trojan/Bots/Spyware/Ransomware/ Cryptominers.
• Attack on servers such as Database, Mail and DNS and network devices such as Routers.
• Identity Theft, spoofing and phishing attacks.
• Denial of Service (DoS) and Distributed Denial of Service (DDoS) attacks.  
• Attacks on Critical infrastructure, SCADA and operational technology systems and Wireless networks.
• Attacks on Application such as E-Governance, E-Commerce etc.  
• Data Breach.  
• Data Leak.
• Attacks on Internet of Things (IoT) devices and associated systems, networks, software, servers.  
• Attacks or incident affecting Digital Payment systems.  
• Attacks through Malicious mobile Apps.  
• Fake mobile Apps.
• Unauthorised access to social media accounts.
• Attacks or malicious/suspicious activities affecting Cloud computing systems/servers/software/applications.  
• Attacks or malicious/suspicious activities affecting systems/servers/networks/software/applications related to Big Data, Blockchain, virtual assets, virtual asset exchanges, custodian wallets, Robotics, 3D and 4D Printing, additive manufacturing, Drones.

Business Overview

A health-tech company operating a digital clinic under the brand name ‘Proactive For Her’, providing a digital platform to offer accessible, personalized, and confidential healthcare solutions for women.

Project Undertaken

• Review of accounting records and tax filings on a monthly basis
• Compliance assistance for fundraising

How We Helped?

Review of Accounts and Tax Filing:

• Treelife conducted a thorough review of the monthly accounting books to ensure accuracy and completeness, helping the company maintain precise financial records.
• We ensured GST payments and returns were filed timely and accurately, reducing the risk of non-compliance and potential penalties for the company.
• Our team streamlined and regularized tax returns, annual filings, and other statutory compliances according to applicable due dates, ensuring the company met all regulatory requirements promptly.

Fundraising (Compliance Advisor):

• Treelife provided compliance advisory services for the company’s fundraising efforts, ensuring that all financial records and compliance requirements were up-to-date.
• We assisted with the timely updating of accounting entries and filings, completing requisite regulatory compliances efficiently.
• Our involvement ensured a reduction in the turnaround time (TAT) for payments and MIS processing, facilitating smoother financial operations and improved investor confidence.

By leveraging our expertise in financial and compliance advisory, Treelife enabled ‘Proactive For Her’ to maintain accurate financial records, meet all compliance requirements, and support its fundraising activities. Our comprehensive support helped the company focus on its core mission of providing accessible and personalized healthcare solutions while ensuring robust financial and compliance management.

Treelife played a pivotal role in helping an Indian private limited company transition to a US-headquartered structure. By setting up an LLP in India and guiding the investment process under the ODI route, we ensured compliance with FEMA and income-tax regulations. Our strategic approach enabled the company to raise funds from foreign investors and expand globally with minimal tax implications.

Business Overview

Indian individual promoters had established a private limited company in India and sought to expand their business globally. They aimed to raise funds from foreign investors and transition to a US-headquartered structure.

Project Undertaken

• Setting up an LLP in India
• Investment in a newly incorporated US entity under the ODI route
• Acquisition of Indian entity shares by the US entity from the promoters

Structure Mechanics:

• Indian individual promoters set up an LLP in India.
• The LLP makes investments in a newly incorporated US entity under the ODI route.
• The US entity acquires the shares of the Indian entity from the promoters, adhering to FEMA and income-tax regulations.
• A benchmarking study is undertaken for all ongoing transactions between the US entity and the Indian entity.

Parameters:

• The gift structure used under the erstwhile ODI rules was no longer possible, as Indian resident founders can now receive gifts of shares from their relatives.
• Recently revamped ODI rules by RBI do not permit a foreign company to set up an Indian subsidiary where the Indian promoters control such a foreign company.
• Any transaction between the offshore company and its Indian subsidiary needs to be benchmarked from a transfer pricing perspective.
• Minimal income-tax implications and adherence to FEMA pricing norms.

Facts:

• Indian promoters aimed to expand their business globally and raise funds from foreign investors.
• They sought to move to a US-headquartered structure to facilitate this expansion.

By strategically structuring the investment and ensuring compliance with the latest ODI rules and FEMA pricing norms, Treelife enabled the company to achieve its global expansion goals. Our financial advisory services provided the necessary support to navigate complex regulatory landscapes and optimize tax implications, ensuring a smooth transition for the company’s international growth.

In just a few weeks, Treelife transformed the financial infrastructure of an innovative SaaS company. We set up efficient accounting systems, ensured seamless bookkeeping, and provided critical fundraising support. Discover how our strategic approach reduced their operational burden and enhanced their financial management.

Business Overview

An innovative insurance-tech company using technology and innovation to transform the traditional insurance model. The company offers a cloud-based platform that connects distributors to the insurance ecosystem.

Project Undertaken

• Setting up systems for HR, accounting, and payroll
• Ongoing bookkeeping, tax compliance, and payments
• Fundraising and due diligence support

How We Helped?

Setting Up:

• Treelife took ownership and set up the entire accounting system for the company from inception using Zoho Books and Zoho Payroll.
• Assisted in migrating from Zoho Payroll to Keka, ensuring a smooth transition.
• Effective implementation of software and processes reduced the time and effort required by the founders.

Bookkeeping and Accounting:

• Timely updating of accounting entries and filing, ensuring compliance with regulatory requirements.
• Completion of requisite regulatory compliances, reducing TAT for payments and MIS processing.

Fundraising & Vendor Due Diligence:

• Represented the company during the due diligence process conducted by investors, assisting them in understanding the business model and transaction workflow.
• Submitted data in the requisite formats and seamlessly resolved queries from the diligence team regarding finance and tax-related areas promptly.

By leveraging our expertise in financial management, Treelife significantly improved the company’s operational efficiency and supported its growth journey. Our comprehensive services ensured that the company was well-prepared for investor scrutiny and ongoing financial challenges.

IFSCA listing regulations requires debt securities to adhere to international standards/principles to be labelled as “𝐠𝐫𝐞𝐞𝐧”, “𝐬𝐨𝐜𝐢𝐚𝐥”, “𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲” 𝐚𝐧𝐝 “𝐬𝐮𝐬𝐭𝐚𝐢𝐧𝐚𝐛𝐢𝐥𝐢𝐭𝐲-𝐥𝐢𝐧𝐤𝐞𝐝” 𝐛𝐨𝐧𝐝.

As of September 30, 2024, the IFSC exchanges boasted a listing of approximately USD 14 billion in ESG-labelled debt securities, a significant chunk of the total USD 64 billion debt listings in a short period. This rapid growth highlights the growing appetite for sustainable investments among global investors.

Certain investors, particularly institutional ones like pension funds and socially responsible investment (SRI) funds, explicitly state in their investment mandates that they can only invest in ESG-labeled securities. To encourage and promote ESG funds, the IFSCA has waived fund filing fees for the first 10 ESG funds registered at GIFT-IFSC, to incentivise fund managers to launch ESG-focused funds.

However, this rapid growth also comes with a significant risk of “greenwashing” where companies or funds exaggerate or falsely claim their environmental and sustainability efforts.

𝐖𝐡𝐚𝐭 𝐢𝐬 “𝐆𝐫𝐞𝐞𝐧𝐰𝐚𝐬𝐡𝐢𝐧𝐠”?

However, with this rapid growth comes a significant risk: greenwashing. Greenwashing occurs when companies or funds exaggerate or fabricate their environmental and sustainability efforts to project a greener image and attract investors. It’s essentially a deceptive marketing tactic that undermines the true purpose of sustainable investing.

IFSCA’s Consultation Paper: Mitigating Greenwashing

Recognizing the threat of greenwashing, the IFSCA has released a consultation paper seeking public comment on a draft circular titled “Principles to Mitigate the Risk of Greenwashing in ESG labelled debt securities in the IFSC.” This circular outlines principles that companies and funds issuing ESG-labelled debt securities on the IFSC platform must adhere to.

Refer link for consultation paper: https://ifsca.gov.in/ReportPublication?MId=8kS3KLrLjxk= 

Karnataka, a state in India known for its vibrant tech industry, has recently unveiled its Global Capability Centres (GCC) Policy 2024-2029. This ambitious policy aims to solidify Karnataka’s position as a leading hub for GCCs in India and propel the state’s tech ecosystem to even greater heights.

What are Global Capability Centres (GCCs)?

For those unfamiliar with the term, GCCs are specialized facilities established by companies to handle various strategic functions. These functions can encompass a wide range of areas, including:

• Information Technology (IT) services
• Customer support
• Research and development (R&D)
• Analytics

By setting up GCCs, companies can streamline operations, reduce costs, and tap into a pool of talented professionals. This allows them to achieve their global objectives more efficiently.

Why is Karnataka a Major Hub for GCCs?

India is a powerhouse for GCCs, boasting over 1,300 such centers. Karnataka takes the lead in this domain, housing nearly 30% of India’s GCCs and employing a staggering 35% of the workforce in this sector. Several factors contribute to Karnataka’s attractiveness for GCCs:

• Vast Talent Pool: Karnataka is home to some of India’s premier educational institutions, churning out a steady stream of highly skilled graduates in engineering, technology, and other relevant fields.
• Cost-Effectiveness:India offers a significant cost advantage for setting up and operating GCCs, compared to other global locations.

Key Highlights of Karnataka’s GCC Policy 2024-2029

The recently unveiled GCC Policy outlines a series of ambitious goals and initiatives aimed at propelling Karnataka to the forefront of the global GCC landscape. Here are some of the key highlights:

• Establishment of 500 New GCCs: The policy sets a target of establishing 500 new GCCs in Karnataka by 2029. This aggressive target signifies the government’s commitment to significantly expanding the state’s GCC footprint.
• Generating $50 Billion in Economic Output: The policy envisions generating a staggering $50 billion in economic output through GCCs by 2029. This substantial economic contribution will be a boon for Karnataka’s overall development.
• Creation of 3.5 Lakh Jobs: The policy aims to create 3.5 lakh (350,000) new jobs across Karnataka through the establishment and operation of new GCCs. This significant job creation will provide immense opportunities for the state’s workforce.
• Centre of Excellence for AI in Bengaluru: Recognizing the growing importance of Artificial Intelligence (AI), the policy proposes establishing a Centre of Excellence for AI in Bengaluru. This center will focus on driving research, development, and innovation in the field of AI, fostering a robust AI ecosystem in Karnataka.
• AI Skilling Council: The policy acknowledges the need to equip the workforce with the necessary skills to thrive in the AI-driven future. To address this, the policy proposes the creation of an AI Skilling Council. This council will be responsible for developing and delivering AI-related training programs, ensuring Karnataka’s workforce is well-prepared for the jobs of tomorrow.
• INR 100 Crore Innovation Fund: The policy establishes an INR 100 crore (approximately $12.3 million) Innovation Fund. This fund will support joint research initiatives between academia and GCCs, fostering a collaborative environment that fuels innovation and technological advancements.

The GCC Policy has a clear and ambitious goal: for Karnataka to capture 50% of India’s GCC market share by 2029. Read more about the policy here.

In recent years, a significant number of Indian startups have chosen to incorporate their businesses outside India, primarily in locations like Delaware, Singapore  and other global locations. This trend, known as “flipping,” offered advantages like easier access to foreign capital and tax benefits. However, the tide is starting to turn. We’re witnessing a growing phenomenon of “reverse flipping,” where these startups are now shifting their bases back to India.

This shift back home is driven by several factors, including a booming Indian market, attractive stock market valuations, and a desire to be closer to their target audience – Indian customers. To further incentivize this homecoming, the Ministry of Corporate Affairs (MCA) has recently introduced a significant policy change.

MCA Streamlines Cross-border Mergers for Reverse Flipping

The MCA has amended the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016, to streamline the process of cross-border mergers. This move makes it easier for foreign holding companies to merge with their wholly-owned Indian subsidiaries, facilitating a smooth transition for startups seeking to return to their roots.

Key Takeaways of the Amended Rules

Here’s a breakdown of the key benefits for startups considering a reverse flip through this streamlined process:

• Fast-Track Mergers: The Indian subsidiary can file an application under Section 233 read with Rule 25 of the Act. This rule governs “fast-track mergers,” which receive deemed approval if the Central Government doesn’t provide a response within 60 days.
• RBI Approval: Both the foreign holding company and the Indian subsidiary need prior approval from the Reserve Bank of India (RBI) for the merger.
• Compliance with Section 233: The Indian subsidiary, acting as the transferee company, must comply with Section 233 of the Companies Act, which outlines the requirements for fast-track mergers.
• No NCLT Clearance Required: This streamlined process eliminates the need for clearance from the National Company Law Tribunal (NCLT), further reducing time and complexity.

The Road Ahead

The MCA’s move represents a significant positive step for Indian startups looking to return home. This policy change, coupled with a thriving domestic market, is likely to accelerate the trend of reverse flipping. This not only benefits returning companies but also strengthens the overall Indian startup ecosystem, fostering innovation and entrepreneurial growth within the country.

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As India marches towards its goal of becoming a $5 trillion economy, innovation and global connectivity in finance have become critical components of this journey. At the heart of this transformation lies the Gujarat International Finance Tec-City (GIFT City)—India’s first operational International Financial Services Centre (IFSC). Launched in 2007, GIFT City is not just a hub for international finance; it represents India’s vision of becoming a leader in global finance, technology, and innovation. GIFT IFSC provides a comprehensive platform for financial activities, including banking, insurance, capital markets, FinTech, and Fund Management Entities (FMEs). Its attractive tax incentives and solid regulatory framework make it a gateway for both inbound and outbound global investments, drawing businesses and investors from around the world.

At Treelife, we are excited to present “Navigating GIFT City: A Comprehensive Guide to India’s First International Financial Services Centre (IFSC).” This guide offers insights into the current legal, tax, and regulatory framework within GIFT IFSC, highlighting the strategic advantages of establishing a presence here, with a focus on the FinTech and Fund Management sectors. Whether you’re an investor, financial institution, or corporate entity exploring opportunities, we believe this guide will be a valuable resource in navigating the exciting prospects within GIFT IFSC.

What Does GIFT City Offer?

GIFT City is positioned as a global hub for financial services, offering a range of services across banking, insurance, capital markets, FinTech, and Fund Management Entities (FMEs). By combining smart infrastructure and a favorable regulatory environment, GIFT City is becoming the go-to destination for businesses seeking ease of doing business, innovation, and access to global markets.

Here are some key takeaways from the guide:

1. Introduction to GIFT City and IFSCA

GIFT City is the epitome of India’s ambition to establish a world-class international financial center. The International Financial Services Centres Authority (IFSCA) is the primary regulatory body that oversees operations within GIFT City, ensuring a seamless and globally competitive financial environment. IFSCA’s unified framework offers businesses ease of compliance and flexibility, making it an attractive hub for both domestic and international entities.

2. Regulatory Framework for Permissible Sectors with Treelife Insights

Our guide provides an in-depth look at the regulatory landscape governing GIFT City’s key sectors, including banking, insurance, capital markets, and many more, with a special focus on FinTech, and Fund Management Entities (FMEs). Alongside Treelife insights, we highlight how the city’s regulatory framework promotes innovation, offering businesses a fertile ground for growth. 

3. Setup Process

Our guide walks you through the step-by-step setup process for entities looking to establish operations. Whether you are a startup, a financial institution, or a multinational company, guide through GIFT City’s infrastructure and compliance processes.

4. Tax Regime

One of the standout advantages of operating within GIFT City is its favorable tax regime. Businesses enjoy significant tax exemptions, including a 100% tax holiday on profits for 10 out of 15 years, exemptions on GST, and capital gains tax benefits. These incentives are designed to attract global businesses and investors, positioning GIFT City as a competitive alternative to other international financial hubs. Our guide details these tax benefits and how businesses can leverage them for maximum advantage.

Why This Guide is Essential

Our guide provides a comprehensive overview of the opportunities within GIFT City, focusing on FinTech and Fund Management sectors. It also includes a detailed analysis of the tax incentives, setup processes, and regulatory requirements that make GIFT City an attractive destination for global financial institutions.

Whether you’re an investor looking to tap into India’s expanding economy, or a business exploring new markets, this guide will serve as your roadmap to success within GIFT City.

Download the Guide

Discover how GIFT City is shaping the future of finance and how you can be part of this exciting journey. Download our guide to learn more about the opportunities, regulatory framework for the permissible sectors, incentives, and innovations that await in India’s first IFSC.

For any questions or further information, feel free to reach out to us at [email protected].

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As we are witnessing NIFTY 50’s 52-week high, it’s a moment to reflect on the extraordinary journey this index has taken since its inception in 1996. Launched with an index value of 1000, NIFTY 50 has steadily grown, reaching an impressive 25,940.40 by September 2024—marking a growth of approximately 2,494%. This performance solidifies its place as a cornerstone of the Indian stock market.

A Benchmark of Indian Financial Growth

The NIFTY 50 index, short for National Stock Exchange Fifty, represents the performance of the top 50 companies listed on the NSE. It serves as a key benchmark for mutual funds, facilitates derivatives trading, and is a popular vehicle for index funds and ETFs. Over the last 28 years, it has been a testament to the robustness of the Indian economy, demonstrating the potential of long-term investment in the stock market.

A Comparison Across Asset Classes

Over the years, NIFTY 50 has outshined other traditional asset classes like gold, silver, and real estate. While these assets have held their value, particularly in times of economic volatility, NIFTY 50 has consistently delivered superior returns.

• NIFTY 50: A ₹1000 investment in NIFTY 50 in 1996 would have grown to ₹25,790.95 by 2024, reflecting a 12.31% CAGR.
• Gold: A similar investment in gold would have appreciated to ₹14,193.80, giving a 10.72% CAGR.
• Silver: Investing ₹1000 in silver in 1996 would be worth ₹12,591.89 today, with a 10.30% CAGR.
• Real Estate: A standard 9.3% CAGR would take ₹1000 to ₹10,903, reflecting real estate’s slower but steady growth in India.

These figures showcase how NIFTY 50 has not only matched but outpaced traditional safe-haven assets. While gold and silver offer reliability during economic uncertainty, they cannot compete with the compounding returns offered by the stock market.

Sectoral Shifts Reflecting India’s Growth

The sectoral composition of NIFTY 50 has evolved significantly. In 1995, Financial Services contributed just 20% of the index. Fast forward to 2024, and they now dominate with 32.6%. The rise of Information Technology, which was non-existent in 1995, grew to 20% by 2005 but has slightly reduced to 14.17% today. This shift from manufacturing and resource-based sectors to services and technology highlights India’s transformation into a modern, service-driven economy.

Resilience Through Market Challenges

NIFTY 50’s journey has not been without challenges. The index has weathered multiple crises, including the Dot-com bubble (2000-2002), Sub-prime crisis (2007-2008), Demonetization (2016), and the COVID-19 pandemic (2020). Despite these hurdles, NIFTY 50 has shown resilience, rebounding stronger each time and proving to be a robust long-term investment option.

Conclusion

As NIFTY 50 celebrates 28 years of excellence, its consistent returns and ability to outperform other asset classes make it a dominant force in India’s financial markets. For investors looking to balance risk and reward, NIFTY 50 remains a reliable choice, reflecting the strength and potential of India’s growing economy.

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The Union Budget 2024 marks a significant milestone in India’s economic journey. This Budget underscores the Government’s commitment to maintaining fiscal prudence while driving substantial investments in critical sectors. Despite global economic challenges, the Indian economy has fared well, maintaining stability and growth. For 2024-25, the fiscal deficit is expected to be 4.9% of GDP, with a target to reduce it below 4.5% next year. Inflation remains low and stable, moving towards the 4 percent target, with core inflation (non-food, non-fuel) at 3.1 percent.

The theme of the Budget focuses particularly on employment, skilling, MSMEs, and the middle class. This budget outlines the roadmap to Viksit Bharat 2047 focusing on  nine priority areas to generate ample opportunities for all: productivity and resilience in agriculture, employment and skilling, inclusive human resource development and social justice, manufacturing and services, urban development, energy security, infrastructure, innovation and R&D, and next-generation reforms.

The Budget introduces several pivotal reforms aimed at simplifying tax structures, incentivizing investments, and promoting sustainable growth. The abolition of angel tax, reduction in corporate tax rates for foreign companies, and comprehensive review of the Income-tax Act, 1961 in the coming days are expected to bolster the startup ecosystem and attract international investments.

The subsequent sections of this Budget document provide an in-depth analysis and key highlights related to personal taxation, business reforms, investment opportunities, and developments in GIFT-IFSC. Personal taxation changes include revised income tax slabs, increased deductions, and adjustments in Taxes Collected at Source (TCS) and Taxes Deducted at Source (TDS) regulations. Business reforms cover the abolition of the angel tax, reduction in corporate tax rates for foreign companies, and measures to enhance ease of doing business. Investment opportunities are improved through rationalization of the capital gains tax regime, changes in holding periods and tax rates, and amendments related to buyback taxation and Securities Transaction Tax (STT) rates. GIFT-IFSC developments include tax exemptions for Retail Schemes and Exchange Traded Funds (ETFs), removal of surcharges on specified income, and other measures. These sections provide a comprehensive overview of the Union Budget 2024’s measures to support individuals, businesses, and investors, and to enhance India’s position as an attractive destination for global investment and financial activities.

The Union Budget 2024 is a balanced and forward-looking document, reflecting the Government’s resolve to steer the economy towards sustainable growth, innovation, and inclusiveness. This detailed presentation analysis aims to provide a comprehensive analysis of the Budget’’s key highlights, policy changes, and their implications for various sectors of the economy.

Overview 

Key Macroeconomic Indicators from Budget 2024 

Notes: 1. Inflation: Low, stable and moving towards the 4 per cent target, 2. Core inflation (non-food, non-fuel): 3.1 per cent

Key Policy Highlights – Budget 2024

1. Employment and Skilling

• Provides wage support and incentives for first-time employees and job creation in manufacturing, along with employer reimbursements for EPFO contributions. Expected to benefit 2.1 crore youth, 30 lakh manufacturing jobs, and incentivize 50 lakh employees.
• Internships for 1 crore youth in 500 top companies over 5 years, with INR 5,000 monthly allowance along with one-time assistance of INR 6,000. Companies eligible to cover training costs and 10% of internship costs from their CSR funds.

2. MSMEs and Manufacturing

• Credit Guarantee and Support: The Credit Guarantee Scheme facilitates term loans for machinery and equipment purchases without collateral, covering up to INR 100 crore per applicant. Additionally, a new mechanism will ensure continued bank credit to MSMEs during stress periods, supported by a Government-promoted fund.
• New Assessment Model for MSME Credit: Public sector banks to develop new credit assessment models based on digital footprints rather than traditional asset or turnover criteria.

3. Ease of Doing Business (Tax and Compliance)

• Angel Tax Abolished: Abolishment of angel tax for all classes of investors to boost the startup ecosystem and entrepreneurial spirit.
• Income Tax Reforms: Comprehensive review of the Income-tax Act, 1961 in the coming days to reduce disputes and litigation.
• Variable Capital Company (VCC) Structure: Legislative approval sought for providing an efficient and flexible mode for financing leasing of aircrafts and ships and pooled funds of private equity through a ‘variable company structure’.
• Stamp Duty Reduction: Encouraging states to moderate high stamp duty rates and consider further reductions for properties purchased by women.
• Foreign Direct Investment (FDI) and Overseas Investment: The rules and regulations for FDI and Overseas Investments will be simplified to facilitate foreign direct investments, nudge prioritization, and promote opportunities for using Indian Rupee as a currency for overseas investments.

4. Space Economy and Technology

• A venture capital fund of INR 1,000 crore to expand the space economy by five times in the next decade. 
• Full exemption of customs duties on 25 critical minerals and reduction on two others to support sectors like space, defense, and high-tech electronics.

5. Services

• Development of  Digital Public Infrastructure (DPI) applications at population scale for productivity gains, business opportunities, and innovation by the private sector. Planned areas include credit, e-commerce, education, health, law and justice, logistics, MSME services delivery, and urban governance.
• An Integrated Technology Platform will be set up to improve the outcomes under the Insolvency and Bankruptcy Code (IBC) for achieving consistency, transparency, timely processing, and better oversight for all stakeholders.

6. Others

• Urban Land Related Actions: Land records in urban areas will be digitized with Geographic information system (GIS) mapping. An IT-based system for property record administration, updating, and tax administration will be established. These will also facilitate improving the financial position of urban local bodies.

9 Pillars to Viksit Bharat 2047 and Policy Initiatives

To drive India’s growth and development, the Union Budget 2024 outlines nine strategic pillars that form the foundation for the nation’s economic agenda, aiming towards Viksit Bharat 2047. These pillars encompass key sectors and initiatives aimed at enhancing productivity, fostering innovation, and ensuring inclusive development. Each pillar is supported by targeted policy measures designed to create opportunities, boost investments, and address critical challenges. The following sections detail these pillars and the corresponding policy initiatives.

Decoding Tax in Budget 2024 

The subsequent part of this Budget document is broken down into 4 primary sections providing in-depth tax analysis including:

• Personal – Individuals including founders, team members, etc.

• Investment – Primarily taxation norms around capital gains.

• Business – Startups and other businesses.

• GIFT-IFSC – Proposed amendments for IFSC units.

These sections provide a comprehensive overview of the Union Budget 2024’s measures to support global investment and financial activities.

I. Personal

• Revision of slab rates for individuals under new tax regime

Proposed changes in personal income tax slabs for individuals (highlighted below) resulting in a tax saving of up to INR 17,500 excluding surcharge and cess under new tax regime.

Note : Full tax rebate available for taxable income upto of INR 7,00,000

Treelife Insight: 

We have prepared a tax calculator to explore potential tax savings here. 

Increase in tax deductions under new tax regime

• Standard deduction for salaried employees is proposed to be increased to INR 75,000 from
  INR 50,000.
• Cap of deduction against income from family pension for pensioners increased to INR 25,000 from INR 15,000.
• Deduction for employer’s contribution to NPS increased from 10% to 14% even for employees other than Central or State Government employees.

TCS collected from minors

TCS collected from minors can only be claimed as credit by the parent in whose income the minor’s income is clubbed. This amendment is effective from January 1, 2025.

Credit for TCS and all TDS for salaried employees

It is proposed to allow employees to club their TCS and TDS (other than salaries) for the purpose of computing TDS to be deducted from salary. 

Treelife Insight:

TCS is usually collected on foreign travel, LRS remittances, purchase of cars beyond a limit. This will help salaried employees effectively manage tax cash flows.

Income classification of rent on residential house

It has been clarified that income from letting out of a residential house to be classified under the heading “Income from house property” and not “business income”.  

Increase in limits for applicability of Black Money Act, 2015 for disclosure of foreign income and asset in the Income Tax Return (ITR)

Penal provisions under section 42 and 43 of the Black Money Act, 2015 proposed to not apply in case of non-reporting of foreign assets (other than immoveable property) with value less than
INR 20,00,000 (increased from earlier threshold of INR 5,00,000).

Quoting of Aadhaar Enrolment ID in ITRs discontinued 

Quoting of Aadhaar Enrolment ID proposed to be no longer allowed in place of Aadhaar number for ITRs filed after October 1, 2024.

II. Investment

1. Rationalization of Capital Gains Tax Regime 

Capital gains tax regime is proposed to be rationalized with effect from July 23, 2024 as summarized below:

Rationalization of Holding Period: 

Change in Tax Rates:

Long term capital assets

Notes:   

1. Exemption available under LTCG has been increased to INR 125,000.
2. No indexation benefit available for LTCG however forex fluctuation benefit available to NR on sale of unlisted shares.
3. Indexation available for unlisted shares on March 31, 2018 and sold in Offer for Sale (OFS)

Short term capital assets

Treelife Insight: 

Mandatory classification of income on sale debentures (including CCDs / NCDs)  and bonds as short term capital gains is a big move and could impact the Real Estate investors where such instruments are widely used. It will be interesting to see how such investors will react to this increase in tax rates.

Reduction in tax rates for long term capital gains on unlisted equity shares should give an impetus to PE / VC funds investing in startups as the lower tax rate will ultimately lead to an increase in the IRR for investors. 

Reducing the period of holding for immovable properties to 24 months and reducing the long term capital gains tax rate to 12.5% will be looked at positively.

2. Change in taxation of buyback 

Currently, buyback distribution tax is levied on the company at ~23% on the distributed income. It is proposed to tax the buyback proceeds in the hands of the shareholders as “dividend income” at applicable tax rates. The cost of acquisition of shares being bought back to be claimed as a capital loss (depending on holding period).

This amendment is proposed to be effective from October 1, 2024

Treelife Insight: 

This will deter companies from offering buybacks as there is a significant tax outflow for the shareholders under the proposed regime. Further there could be timing mismatch between the claiming of loss and payment of tax on buyback proceeds resulting in cash outflow for the shareholders.

3. Increase in STT rates

STT rates for futures and options proposed to be increased with effect from to be effective from October 1, 2024:

III. Business

1. Abolition of Angel Tax

Angel tax i.e. section 56(2)(viib) of the Income-tax Act, 1961 proposed to be abolished with effect from April 01, 2024

Treelife Insight:

• This is a big and welcome move for the startup ecosystem which should significantly boost investor confidence, especially foreign investors which were bought under the ambit of angel tax recently
• This amendment is prospective in nature and thus, past tax disputes to still continue
• Gift tax i.e. section 56(2)(x) for recipient of shares continues to apply
• Differential equity pricing structures will now evolve with this relief
• It may be interesting to see if investors insist on ‘merchant banker’ valuation reports under section 56 (2) (x)  in small equity fundings which materially affect startups.

2. Reduction in corporate tax rate for foreign companies

Tax rates for foreign companies proposed to be reduced from 40% to 35%.

3. Clarification for taxes withheld outside India 

It is clarified that taxes withheld outside India are to be included for the purposes of calculating total income. 

4. Increase in limit of remuneration to working partners of a firm allowed as deduction

5. Miscellaneous 

• Equalisation levy of 2% proposed to be abolished with effect from August 1, 2024 
• Vivaad Se Vishwas Scheme proposed to be introduced
• Time limit for issue of notice for initiation of re-assessment reduced from maximum 10 years from end of assessment year to 5 years and 3 months from end of assessment year.
• Insertion of section 74A , an approach that consolidates the dealing with discrepancies irrespective of fraud and simplifying the procedural aspects under the CGST Act (on recommendations of GST Council) from FY 2024-25 as under 

• Limitation period stands at 42 months (from the due date of furnishing the annual return for the financial year) for the purpose of issuance of notice (earlier it was 36 months in case of no allegation of fraud or suppression and 60 months in case of allegation of fraud or suppression)
• Time period of 12 months for purposes of passing order (beyond 42 months as aforesaid) extendable by 6 months with approval.

6. Clarificatory amendments related to TDS

Section 194-IA (TDS on sale of immovable property) – Proposed to add a proviso to clarify that the threshold limit of INR 50 lakhs is to be checked on the total value of the property and not on amount paid to each individual seller (with effect from October 1, 2024).

Excluding sums paid under section 194J from section 194C (Payments to Contractors) –Earlier, taxpayers used to deduct TDS under section 194C even if the payment was liable to TDS under section 194J because there was no specific mutually exclusive clause while defining the word “work”. It is proposed to amend the definition of “work” under section 194C to specifically exclude any sum referred to in section 194J (with effect from October 1, 2024)

7. Rationalization of TDS/TCS rates

8. Procedural changes related to TDS proposed:

1. Time limit to file belated TDS/TCS return in order to not-attract penal provisions to be reduced from 1 year to 1 month from the due date of filling of such TDS/TCS returns (Section 271H) – with effect from April 1, 2025.
2. Provision to include levy of TCS at 1% on Luxury goods of value exceeding INR 10 lakhs. (Section 206C(1F)) List of such luxury goods are yet to be notified.  – with effect from January 1, 2025
3. Exemption from prosecution if the payment of TDS is made before the due date of filing of TDS return as applicable for such TDS payments (Section 276B)  – with effect from October 1, 2024
4. Applications for Lower tax deductions / collection at source can be made in respect of TDS/TCS u/s 194Q and 206C respectively – with effect from October 1, 2024.
5. Non revision of the TDS / TCS filings post 6 years of the end of the financial year in which the returns are to be filed. – with effect from April 1, 2025.
6. Fixation of time limit for deeming an assessee in default as under –
   1. 6 years from the end of FY in which credit given / payment was made.
   2. 2 years from the end of FY in which the correction statement is filed – with effect from April 01, 2025.
7. Nil / Lower Tax rates for certain class of notified persons (Class of persons yet to be notified) – with effect from October 1, 2024.

IV. GIFT-IFSC

1. Tax exemptions extended to Retail Schemes and ETFs

Proposed to amend the definition of ‘Specified Fund’ under Section 10(4D) to  include Retail Schemes and ETFs launched in GIFT-IFSC thereby extending the beneficial tax regime applicable for CAT III AIFs to GIFT-IFSC to Retail Schemes and ETFs

Treelife Insight: 

Relevant only for Inbound Funds setup by pooling money from non-resident investors as the condition that units (other than Sponsor / Manager units) to be held by non-resident investors continues to apply.

2. No surcharge on income for Specified Fund

Surcharge rate on interest and dividend income proposed to be removed for Specified Fund set-up in GIFT-IFSC even if setup as other than Trust

3. Section 68 provisions no longer applicable to Venture Capital Funds            (VCFs)

Section 68 dealing with unexplained cash credits allows the tax officer to seek an explanation to provide the source of its funds used for making investment / offer loans to companies subject to these provisions. It is proposed to amend the definition of ‘venture capital funds’ to include VCFs in GIFT-IFSC thereby exempting them from questioning by the tax officer under section 68.

4. Finance Companies exempted from complying with ‘Thin       capitalisation’ norms

Exemption from ‘Thin Capitalisation’ norms prescribed under section 94B for Bank and NBFCs extended to Finance Companies in GIFT-IFSC

Treelife Insight:

Finance companies in GIFT-IFSC, especially those engaged in treasury functions, lending or borrowing from non-residents should benefit from the removal of the cap on the deduction for interest expenditure, which was previously limited to 30% of EBITDA for that financial year.

5. Exemption on specified income from Core Settlement Fund setup by recognised clearing corporations

Proposed to amend the definition of ‘recognised clearing corporations’ under Section 10(23EE) to  include ‘recognised clearing corporations’ setup in GIFT-IFSC, thereby, exempting any specified income of Core Settlement Guarantee Fund, set up by such corporations.