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Anand Prakash
CEO, Pingsafe
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Treelife served as our integrated legal team, they streamlined contract closure and processes, provided expert business advice, and supported our growth journey. Their proactive approach and attention to detail were invaluable in navigating challenges effectively. We highly recommend Treelife to startups aiming for sustainable and efficient growth.

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Karan Bajaj
CEO, WhiteHat Jr
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Jitesh and Garima helped set up WhiteHat Jr’s legal and financial structures that held from incorporation to fundraising to our acquisition. Their deep understanding of the startup space helped us validate our ideas from a regulatory framework and generated confidence among key stakeholders as we expanded our product in India and abroad.

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Arnav Sahni
Cofounder, SPLOOT
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Treelife’s support has been outstanding. Their advice is proactive, their turnaround time is impressive, and their industry knowledge is unmatched. They guided us through our ESOP policy implementation and negotiated and closed two equity fundraising transactions with ease. We highly recommend Treelife to any start-up entrepreneurs in need of legal, compliance and financial support for their business.

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We have engaged with Jitesh and the team at TreeLife on multiple assignments through our journey. TreeLife has been super helpful and have made positive contributions in multiple transactions spanning legal, financial and engagements involving our key acquisitions at Raise. We highly recommend associating with them.

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Lead Finance Ops, Partoo
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Treelife has been a great help in opening our subsidiary in India. Reactive and very professional, they ensure the good management of this subsidiary. We are very satisfied with the work they are doing.

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Geetansh Bamania
Founder, Rentomojo
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Treelife provides us with critical insights into our business, allows us to make fast decisions and ultimately become more dynamic and competitive in the marketplace. To top it all off, the support has been brilliant, quick, helpful and personal. We are super impressed with Treelife. Recommended Treelife to my contacts.

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shutting down a startup

Shutting Down a Startup – A Step by Step Guide

When and Why to Shut Down a Startup?

While the startup journey can be exhilarating, as with any business venture, there may come a time when the path forward is a dead-end. Causes such as unsustainable business models, unforeseen market shifts, funding challenges, or a change in vision can impact the lifespan of a startup, leading to the difficult decision to shut down the business.  

Similar to setting up an enterprise, closing a business requires careful planning and execution, taking into account the applicable laws. This article aims to provide a quick reference guide to navigate the shutting down of an enterprise in compliance with the legal and regulatory framework in India. 

Shutting Down a Startup -Step by Step Process

The shutting down of an enterprise is a complex and layered process that not only requires strict compliance with the applicable legal framework but also requires structuring such that personal assets are protected and losses during the closure process are minimized.

1. Stakeholder Management

Making the decision to shut down an enterprise requires a thorough evaluation of the company’s financial health and obligations, and consultation with key stakeholders (including shareholders and investors). Investors brought into the company as part of the funding process will typically have exit requirements that are contractually negotiated and recorded in the relevant transaction documents. The closure of the company will accordingly have to take into account any contractually agreed liquidation distribution preference.

2. Labour Law Compliance

Labour disputes in India are largely governed by the Industrial Disputes Act, 1947 (“IDA”). Subject to the applicability of the IDA to the concerned employee, the company will be required to adhere with strict conditions stipulated by IDA in the event of closure[1] of business. Accordingly, the company will be required to apportion for severance pay and settlement of any outstanding salary or social security contributions that are due and payable by the company. Compliance with the applicable labor laws may also impact the timelines set out for closure of the enterprise. For example, subject to the conditions set out in the IDA, the company may be required to obtain approval for the closure from the competent governmental authority and send prior notice of 60 days intimating employees of the intent of closure. Further, the amount of compensation payable to the employee is also impacted by the circumstances leading to closure.  

3.Financial Management

In the event of closure, it is mandatory that the creditors of the company (both contractual and statutory) are apportioned for. In this regard it is critical to note that the Indian courts have previously held that funds raised through a share subscription agreement bore the nature of a commercial borrowing, making a claim for unachieved exit/buyback admissible under the Insolvency and Bankruptcy Code, 2016[2]. As such, a clear resolution plan that settles all statutory (including taxation and social security contributions) and contractual liabilities of the company will be required.

4. Closure Option under Company Law – Winding Up

The Registrar of Companies (“ROC”) maintains records of incorporation and closing of companies (considered “juristic persons” in law). As such, closure of an enterprise attracts certain statutory processes dependent on the circumstances leading up to the closure. For companies that are yet to settle all liabilities, and further to the introduction of the Insolvency and Bankruptcy Act, 2016 (“IBC”), the companies can close their businesses under the Companies Act, 2013 (“CA”), through a  winding up petition submitted to the National Company Law Tribunal (“NCLT”). This process requires a special resolution of the shareholders approving the winding up of the company. 
The company (and such other persons as expressly permitted by the CA) will need to file a petition before the NCLT under Section 272 along with specified supporting documentation such as a ‘statement of affairs’ (format prescribed in the law). The petition will be heard by the NCLT, during the process of which the company will be required to advertise the winding up[3]. Once the winding up is satisfied, the NCLT will pass a dissolution order, which dissolves the existence of the company and strikes off its name from the register of companies. This process is largely left up to the discretion of the NCLT, and the tribunal is empowered to appoint a liquidator for the company (through the IBC) or reject a petition on justifiable grounds. The company would be bound by the order of NCLT to complete the winding up and consequent dissolution.

5. Closure Option under Company Law – Strike Off

For companies that are not carrying on any business for the two preceding financial years or are dormant, an application can be made directly to the ROC for strike off, thereby skipping the winding up process. However, this is subject to the conditions that the company has extinguished all liabilities and obtained approval of 75% of its shareholders for the strike-off. A public notice is required to be issued in this regard, and unless any contrary reason is found, the ROC will thereafter publish the dissolution notice in the Official Gazette and the company will stand dissolved. Startups are able to avail of a fast-track model implemented by the Ministry of Corporate Affairs, which would allow these companies to close their business within 90 days of applying for the strike-off process. This allows companies to achieve closure quickly, save on unnecessary paperwork and filings and avoid prolonged expenses. 

6. Closing Action

While the disposal of assets is often built into the resolution of creditor and statutory dues, it is crucial that the company also take steps to close all bank accounts maintained in its name, ensure that applicable registrations under tax and labor laws be canceled, and complete all closing filings with the ROC and competent tax authorities to record the closure and dissolution of the company. This will ensure that the company’s closure is sanctioned and appropriately recorded by the competent governmental authorities.

Retaining for Future Legal Compliance

Mere closure of the business does not alleviate data security obligations under the law. All sensitive data must be properly backed up, archived, or securely destroyed following data privacy regulations. Essential business records must be maintained for a specific period as required by law and in compliance with the NCLT orders.

Conclusion

Closure of an entity or startup has far-reaching implications, most critically of all, over its employees and its creditors (both contractual and statutory). As such, the legal framework mandates that the employees and creditors are taken care of in the closure process. Typically, where a plan has not been realized for settlement of these obligations, the company enters into the winding up stage, where such liabilities are settled. The final stage of this closure process is the dissolution of the entity itself, – akin to a “death” for the company as a juristic person. However, the framework is designed to ensure that the closure of the enterprise does not absolve the obligations of the company and its officers in charge to settle the outstanding liabilities. 

As more and more entrepreneurs go on to build billion dollar companies, the Indian startup ecosystem has evolved to embrace failure. As PrivateCircle Research claims, “this isn’t just about success, it’s about resilience, learning from failure, and leveraging those experiences to scale greater heights. Serial entrepreneurs come into their second or third ventures with insights, experience and often better access to networks or capital.” This rings true in the trend of venture capitalists and investors looking for founders who have experienced failure and come back stronger, associating the difficult decision to declare a venture a failure as a mark of grit, adaptability and flexibility.

FAQs on Shutting Down a Startup

1. What does it mean to shut down a startup?

Shutting down a startup involves formally closing the business, which includes settling debts, complying with legal requirements, and ensuring proper stakeholder management.

2. What are the primary reasons startups may need to shut down?

Common reasons include unsustainable business models, market shifts, funding challenges, and changes in the founders’ vision or strategy.

3. What are the first steps to take when deciding to shut down a startup?

The first steps include evaluating the company’s financial health, consulting with stakeholders (like investors and employees), and developing a clear plan for the closure process.

4. How should a startup handle its employees during the shutdown?

Compliance with labor laws is crucial. This may include notifying employees, providing severance pay, and settling any outstanding salaries or benefits as per the Industrial Disputes Act, 1947.

5. What legal requirements must be fulfilled to shut down a startup in India?

Legal requirements include filing for winding up or strike-off with the Registrar of Companies (ROC), ensuring compliance with the Companies Act, and settling all statutory and contractual liabilities.

6. What is the difference between winding up and strike-off?

Winding up is a formal process for companies with outstanding liabilities, requiring a petition to the National Company Law Tribunal (NCLT). Strike-off is a quicker process available for dormant companies without liabilities, allowing them to be dissolved directly through the ROC.

7. What financial obligations must a startup fulfill before shutting down?

A startup must settle all outstanding debts, including those owed to creditors, employees, and statutory obligations (such as taxes and social security contributions).

8. What data security measures should be taken during a shutdown?

Companies must ensure sensitive data is backed up, archived, or securely destroyed in compliance with data privacy regulations. Essential business records should be maintained as required by law.

References

[1]  “Closure” defined under Section 2(cc) of the Industrial Disputes Act, 1947 as the “permanent closing down of a place of employment or part thereof”.
[2] https://nclt.gov.in/gen_pdf.php?filepath=/Efile_Document/ncltdoc/casedoc/2709138051512024/04/Order-Challenge/04_order-Challange_004_172804362182744265066ffda65dd44f.pdf
[3] The NCLT winding up process under the earlier provisions required:
Three copies of the winding up petition will be submitted to NCLT in either Form WIN-1 or WIN-2, accompanied by a verifying affidavit in Form WIN-3. Two copies of the statement of affairs (less than 30 days prior to filing petition) will be submitted in Form WIN-4 along with an affidavit of concurrence of statement of affairs in Form WIN-5. NCLT will take the matter up for hearing and issue directions for advertisement. Accordingly, copy of petition is to be served on every contributory of the company and newspaper advertisement to be published in Form WIN-6 (within 15 days).

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SpaceTech-in-India-Legal-and-Regulatory-Overview

Spacetech in India: A Legal and Regulatory Overview

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. 

Indian Space Ecosystem- ISRO, IN-SPACe
Spacetech in India: A Legal and Regulatory Overview

Key Regulatory Bodies of Spacetech in India

S. No.Regulatory Body Role
1.Department of Space (DoS)1. The apex body for space activities in India, DoS oversees policy formulation and implementation.

2. DoS coordinates between ISRO, other government agencies, and private entities to ensure policies are in line with national objectives. It also represents India in international space forums.
2. Indian Space Research Organisation (ISRO)1. As India’s premier space agency, ISRO is responsible for the planning and execution of space missions, satellite launches, and space research.

2. ISRO governs the operational aspects of space missions, including satellite deployment, mission planning, and research initiatives. It ensures adherence to safety protocols and technical standards.
3. Indian National Space Promotion and Authorization Center (IN-SPACe)1. IN-SPACe acts as a regulatory body to promote and authorize space activities by non-governmental entities.

2. Provides a single-window clearance for private sector space projects, ensuring they meet safety and compliance standards. IN-SPACe facilitates private sector participation by streamlining regulatory processes.
4. NewSpace India Limited (NSIL)1. The commercial arm of ISRO, NSIL is responsible for promoting Indian space capabilities globally.

2. Facilitates commercial satellite launches and space-related services, ensuring compliance with international trade laws. NSIL manages the commercialization of space products, technical consultancy services, and technology transfer.
5. Antrix Corporation Limited (ACL)1. The marketing arm of ISRO, Antrix Corporation Limited is responsible for promoting and commercially exploiting space products, technical consultancy services, and transfer of technologies developed by ISRO.

2. ACL deals with the commercialization of space products and services, including satellite transponder leasing, satellite launches through PSLV and GSLV, marketing of data from Indian remote sensing satellites, and the establishment of ground systems and networks. ACL ensures compliance with international trade and export control regulations.

Key Legislations and Policies

S. No.StatuePurposeProvision
1. ISRO Act (1969)The ISRO Act was enacted to establish the Indian Space Research Organisation (ISRO) as the primary body responsible for India’s space program.The Act defines ISRO’s mandate to conduct space research and exploration. It empowers ISRO to develop space technology, launch vehicles, and satellites, and to carry out research in space science. The Act also outlines the organizational structure and governance of ISRO, ensuring it operates under the guidance of the Department of Space.
2.Satellite Communication Policy (1997)This policy aims to foster the growth of a robust domestic satellite communication industry.The policy provides guidelines for satellite communication services, including licensing procedures, spectrum allocation, and operational standards. It promotes the use of satellite technology for telecommunications, broadcasting, and internet services. The policy encourages private sector participation and aims to enhance India’s capabilities in satellite communication.
3.Revised Remote Sensing Data Policy (RSDP) (2011)The RSDP regulates the collection, dissemination, and use of satellite remote sensing data.The policy mandates that remote sensing data with a ground resolution of 1 meter or less be acquired only through government channels. It sets guidelines for data acquisition, processing, and distribution to ensure national security and strategic interests. The policy aims to balance data accessibility with security concerns, promoting the use of remote sensing data for sustainable development and disaster management.
4. NRSC Guidelines (2011)Issued by: ISRO’s National Remote Sensing Centre (NRSC)
These guidelines focus on regulating the acquisition and dissemination of remote sensing data.
The guidelines set standards for data handling, including data quality, accuracy, and security. They outline the procedures for data licensing, usage, and dissemination, ensuring that remote sensing data is used responsibly and in compliance with national policies.
5.ISRO Technology Transfer Policy and Guidelines (2020)To establish a framework for transferring technologies developed by ISRO and the Department of Space (DoS) to industry partners.The policy facilitates the commercialization of ISRO’s technologies, promoting their wider application in various industries. It includes guidelines for licensing, royalty agreements, and intellectual property rights. The policy aims to foster innovation and support the growth of the Indian space technology ecosystem by enabling industry access to advanced space technologies.
6. Geospatial Guidelines, 2021The Geospatial Guidelines aim to liberalize the geospatial data sector in India, promoting ease of access and utilization of geospatial data and private sector participation. The Geospatial Guidelines, 2021, largely permit foreign investments up to 100% under the automatic route with limited foreign investment restrictions. These guidelines are relevant to satellite-generated data, a key component of the space-tech sector. Additionally, the guidelines remove specific restrictions on satellite-generated data, promoting the wider use of satellite imagery. The provisions also ensure alignment with national privacy laws and international treaties.
7.Foreign Direct Investment (FDI) PolicyAllow for higher FDI limits (up to 74% for satellites, 49% for launch vehicles, and 100% for components).The policy sets guidelines for foreign investments in space-related activities, encouraging international partnerships and collaboration. It aims to enhance the competitiveness of the Indian space industry by facilitating access to global markets and advanced technologies. However, clarification is needed on the definitions of “satellite data products” and the categorization of launch vehicle sub-components to ensure smooth implementation.
8.Constitution of India (Articles 51 & 73)Upholds India’s obligations under the Vienna Convention on the Law of Treaties.These articles ensure that India complies with established legal principles for peaceful space exploration. Article 51 promotes international peace and security, while Article 73 extends the executive power of the Union to the exercise of rights under international treaties and agreements.
9.Telecommunications Act (Upcoming)To clarify regulations for satellite communication.The Act will streamline processes for obtaining licenses and spectrum allocation for satellite communication services. It aims to enhance regulatory clarity, reduce bureaucratic hurdles, and promote the efficient use of satellite communication technology in India.
10.Indian Space Policy (2023)A transformative policy allowing private companies to offer satellite communication services using their own satellites or leased capacity.The policy permits private entities to operate in both Geostationary (GSO) and Non-Geostationary (NGSO) orbits. It simplifies the approval process by designating IN-SPACe as the single nodal agency for all approvals, promoting ease of doing business and fostering innovation in the private space sector.
11.Department of Telecommunications (DoT) – Satcom Reforms (2022)To complement the 2023 Space Policy by expediting application processing times and simplifying procedures.The reforms lower compliance requirements for private companies, establish a clear roadmap for obtaining necessary clearances, and streamline regulatory processes. They aim to create a more conducive environment for the growth of the satellite communication industry.
12.Foreign Exchange Management (Non-Debt Instruments) Rules (2019; amended 2024)To complement the 2023 Space Policy by recognising the Space sector and liberalizing the foreign direct investment thresholds.The reform liberalizes the thresholds for automatic entry of foreign direct investment through the space sector, reducing the burden of obtaining governmental approval for such investments.

International Treaties

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

S. No.Treaty Provision 
1.Outer Space Treaty (1967)The treaty includes guidelines on the non-appropriation of outer space, liability for space activities, and the prohibition of nuclear weapons in space. It promotes the peaceful use of outer space and international cooperation.
2.Agreement on the Rescue of Astronauts (1968)This agreement obligates countries to assist astronauts in distress and return them to their country of origin. It establishes protocols for the rescue and safe return of astronauts.
3.Convention on International Liability for Damage Caused by Space Objects (1972)The convention establishes a legal framework for liability and compensation for damages caused by space objects. It outlines procedures for resolving liability claims and determining compensation amounts.
4.Agreement Governing the Activities of States on the Moon and Other Celestial Bodies (1979)The agreement regulates activities on the Moon and other celestial bodies, emphasizing their use for peaceful purposes. It promotes international cooperation and prohibits the establishment of military bases on celestial bodies.
5.Convention on Registration of Objects Launched into Outer Space (1975)The convention mandates the registration of space objects launched by countries, ensuring transparency and accountability. It requires countries to provide details of their space objects, including orbit parameters and launch information.

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.

S. No.Name of the Legal Agreement Description
Regulatory Compliance
1.Licensing AgreementsThese agreements ensure compliance for satellite launches and operations. They must include clauses for adherence to regulatory guidelines, renewal terms, and compliance with any changes in regulations.
2.Launch Service AgreementsThese contracts outline terms for satellite launches using Indian vehicles, covering payload specifications, launch schedules, costs, risk allocation, insurance, and liability for launch failures or delays.
Intellectual Property (IP) Protection
3.Technology Transfer AgreementsThese agreements govern technology transfers from ISRO or other entities, defining the technology, IP ownership, usage rights, confidentiality, sublicensing, and further development.
4.Non-Disclosure Agreements (NDAs)NDAs protect trade secrets and confidential information, defining confidential information, duration of obligations, and permitted disclosures.
5.IP Licensing AgreementsThese agreements allow the use of patented technologies, trademarks, or copyrighted materials, specifying the license scope, usage rights, territorial limitations, royalty payments, and mechanisms for addressing infringement.
Commercial Contracts
6.Satellite Lease AgreementsThese contracts specify terms for leasing satellite transponders or entire satellites, including lease periods, payment terms, service levels, maintenance, upgrades, and liability for interruptions.
7.Service Level Agreements (SLAs)SLAs establish performance metrics and service quality standards for satellite communication services, defining KPIs, penalties, service monitoring, reporting, and dispute resolution mechanisms.
8.Joint Venture (JV) AgreementsJV agreements define roles, responsibilities, and contributions in joint projects, including profit sharing, management structure, exit strategies, IP ownership, confidentiality, and dispute resolution.
Risk Management 
9.Insurance ContractsThese contracts cover risks associated with satellite launches and operations, providing comprehensive coverage for pre-launch, launch, and in-orbit phases, including claim procedures.
10.Indemnity ClausesIndemnity clauses allocate risk and liability, defining the scope of indemnity, covered events, third-party claims, defense obligations, and mutual indemnity arrangements.
Operational Agreements 
11.Ground Station AgreementsThese contracts govern the use and operation of ground stations, defining access rights, maintenance, operational support, payment terms, service levels, and liability for interruptions.
12.Data Sharing and Usage AgreementsThese agreements outline terms for sharing and using satellite data, defining data access rights, usage limitations, data security, privacy, compliance, ownership, licensing, and monetization.

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 IPDescriptionExample
1TrademarkFunction: 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.
Spacetech in India: A Legal and Regulatory OverviewNames, word-marks, logos, symbols, tag-lines, short sound marks, and more.
2Copyright 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
3Patent 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
4Design 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
Spacetech in India: A Legal and Regulatory Overview

5Trade SecretFunction: 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:

ActivityFDI Threshold and Route
Satellites – manufacturing & operation; satellite data products, ground segment & user segmentUp to 74% automatic, beyond 74% up to 100% under government route
Launch vehicles and associated systems or subsystems, creation of spaceports for launching and receiving spacecraftUp to 49% automatic, beyond 49% up to 100% under government route
Manufacturing of components and systems or sub-systems for satellites, ground segment and user segmentUp to 100% automatic

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

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SME IPO Listing in India

SME IPO Listing in India – Platforms, Eligibility, Process

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:

CategorySmall EnterpriseMedium Enterprise
Engaged in manufacture or production of goods in specified industriesInvestment in plant and machinery is more than INR 25,00,000 but does not exceed INR 5,00,00,000. Investment in plant and machinery is more than INR 5,00,00,000 but does not exceed INR 10,00,00,000.
Engaged in providing or rendering of servicesInvestment in equipment is more than INR 10,00,000 but does not exceed INR 2,00,00,000.Investment in equipment is more than INR 2,00,00,000 but does not exceed INR 5,00,00,000.

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

ParameterCriteria for listing – SMEsCriteria for listing – Technology Startups*
1.IncorporationIncorporated under Companies Act 1956/2013Incorporated under Companies Act 1956/2013
2.Post Issue Paid-up CapitalPost issue paid up capital (face value)<= INR 25 cr.Post issue paid up capital (face value)<= INR 25 cr.
3.Track Record•Positive EBITDA in at least 2 out of the last 3 financial years preceding the application •Positive Net Worth• Annual Revenue >= INR 10 cr. • Annual growth (users/revenue/customer base) >= 20%• Positive Net Worth
4.Shareholding conditionsNo specific shareholding condition• At least 10% of its pre-issue capital to be held by qualified institutional buyer(s) (QIB) as on the date of filing of draft offer document. • At least 10% of its pre-issue capital should be held by a member of the angel investor network or Private Equity Firms and Such angel investor network or Private Equity should have had an Investment in the start-up ecosystem in 25 or more start-ups their aggregate investment is more than 50 crores as on the date of filing of draft offer document
5.Other Conditions• The applicant company has not been referred to erstwhile Board for Industrial and Financial Reconstruction (BIFR) • No proceedings have been admitted under Insolvency and Bankruptcy Code against the issuer and Promoting companies • The company has not received any winding up petition admitted by a NCLT / Court. • No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant company.
The applicant Company has not been referred to erstwhile Board for Industrial and Financial Reconstruction (BIFR) • No petition for winding up is admitted by a Court of competent jurisdiction against the applicant Company. • No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant company.
6.Disclosure Requirements• Any material regulatory or disciplinary action  by any authority in past one year • Any defaults in respect of payments • Litigation against the promoters • Track record of directors with respect to any cases filed or ongoing investigations , etc.• Any material regulatory or disciplinary action  by any authority in past one year • Any defaults in respect of payments • Litigation against the promoters • Track record of directors with respect to any cases filed or ongoing investigations , etc.

BSE SME – Criteria For Listing

ParameterCriteria For Listing – SMEs
1.IncorporationIncorporated under Companies Act 1956/2013
2.Post Issue Paid-up CapitalPost issue paid up capital (face value)<= INR 25 cr.
3.Track Record•Positive Net Worth •Net Tangible Assets should be INR 1.5 crores •Company must have distributable profits for at least two out of the last three financial years, excluding extraordinary income. •The company or the partnership/proprietorship/LLP Firm or the rm which have been converted into the company should have a combined track record of at least 3 years. OR •In case it has not completed its operation for three years then the company/ partnership/ proprietorship/ LLP Firm should have been funded by Banks or financial institutions or Central or state government or the group company should be listed for at least two years either on the main board or SME board of the Exchange.
4.Other Conditions•It is mandatory for a company to have a website. •It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories. •There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under SME segment
5.Disclosure Requirements• A certificate from the Applicant Company / Promoting Company stating that the Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).•There is no winding up petition against the company, which has been admitted by the court or a liquidator has not been appointed.

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.

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Streamlining Financial Compliance for a Health-Tech Innovator

Streamlining Financial Compliance for a Health-Tech Innovator

Streamlining Financial Compliance for a Health-Tech Innovator
Streamlining Financial Compliance for a Health-Tech Innovator

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.

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We facilitated a seamless global expansion for an Indian company

We facilitated a seamless global expansion for an Indian company

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.

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We streamlined financial operations for an insurance-tech company in record time

We streamlined financial operations for an insurance-tech company in record time

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.

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IFSCA releases consultation paper seeking comments on draft circular on “𝑷𝒓𝒊𝒏𝒄𝒊𝒑𝒍𝒆𝒔 𝒕𝒐 𝒎𝒊𝒕𝒊𝒈𝒂𝒕𝒆 𝒕𝒉𝒆 𝑹𝒊𝒔𝒌 𝒐𝒇 𝑮𝒓𝒆𝒆𝒏𝒘𝒂𝒔𝒉𝒊𝒏𝒈 𝒊𝒏 𝑬𝑺𝑮 𝒍𝒂𝒃𝒆𝒍𝒍𝒆𝒅 𝒅𝒆𝒃𝒕 𝒔𝒆𝒄𝒖𝒓𝒊𝒕𝒊𝒆𝒔 𝒊𝒏 𝒕𝒉𝒆 𝑰𝑭𝑺𝑪”

IFSCA releases consultation paper seeking comments on draft circular on “𝑷𝒓𝒊𝒏𝒄𝒊𝒑𝒍𝒆𝒔 𝒕𝒐 𝒎𝒊𝒕𝒊𝒈𝒂𝒕𝒆 𝒕𝒉𝒆 𝑹𝒊𝒔𝒌 𝒐𝒇 𝑮𝒓𝒆𝒆𝒏𝒘𝒂𝒔𝒉𝒊𝒏𝒈 𝒊𝒏 𝑬𝑺𝑮 𝒍𝒂𝒃𝒆𝒍𝒍𝒆𝒅 𝒅𝒆𝒃𝒕 𝒔𝒆𝒄𝒖𝒓𝒊𝒕𝒊𝒆𝒔 𝒊𝒏 𝒕𝒉𝒆 𝑰𝑭𝑺𝑪”

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= 

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Karnataka's Global Capability Centres Policy: A Game Changer for India's Tech Landscape

Karnataka’s Global Capability Centres Policy: A Game Changer for India’s Tech Landscape

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.

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Major Boost for Reverse Flipping: Indian Startups Coming Home

Major Boost for Reverse Flipping: Indian Startups Coming Home

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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Navigating GIFT City - A Comprehensive Guide to India’s First IFSC

Navigating GIFT City: A Comprehensive Guide to India’s First International Financial Services Centre (IFSC)

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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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Nifty 50

NIFTY 50: The Asset Class Killer – A 28-Year Journey of Growth

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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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Union Budget 2024 : Gearing Up for Viksit Bharat 2047

Union Budget 2024 : Gearing Up for Viksit Bharat 2047


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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 

Key indicators

Budget 2024-25

Budget 2023-24

Total Receipts (other than borrowings)

⬆️INR 32.07 lakh crore

INR 27.2 lakh crore

Net Tax Receipts

⬆️INR 25.83 lakh crore

INR 23.3 lakh crore

Total Expenditure

⬇️INR 48.21 lakh crore

INR 45 lakh crore

Fiscal Deficit (as % of GDP)

⬇️4.9% 

5.90%

Gross Market Borrowings

⬇️INR 14.01 lakh crore

INR 15.4 lakh crore

Net Market Borrowings

⬇️INR 11.63 lakh crore

INR 11.8 lakh crore

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.

Union Budget 2024 : Gearing Up for Viksit Bharat 2047

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.

Existing Slabs (INR)

Proposed Slabs (INR)

Tax Rate

0-3,00,000

0-3,00,000

NIL

3,00,001-6,00,000

3,00,001-7,00,000

5%

6,00,001-9,00,000

7,00,001-10,00,000

10%

9,00,001-12,00,000

10,00,001-12,00,000

15%

12,00,001-15,00,000

12,00,001-15,00,000

20%

>15,00,000

>15,00,000

30%

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: 

Type of Asset

Period to qualify as Long term

All listed securities

12 months

All other assets (including immovable property) 

24 months

Change in Tax Rates:

Long term capital assets

Type of Asset

Residents

Non-residents

 

Current

Proposed

Current 

Proposed

Listed equity shares and units of equity oriented mutual fund

10%

12.5%

10%

12.5%

Unlisted equity shares

20%

12.5%

10%

12.5%

Unlisted debentures and bonds

20%

Applicable rates

10%

Applicable rates

Units of REITs & InvITs

10% 

12.5%

10%

12.5%

Immovable property

20%

12.5%

20%

12.5%

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

Type of Asset

Residents

Non-residents

 

Current

Propose

Current 

Proposed

Listed equity shares and units of equity oriented mutual fund

15%

20%

15%

20%

Others 

No change – taxable at applicable rates

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:

 

Current

Proposed

Options

0.0625%

0.1%

Futures

0.0125%

0.02% 

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

Existing Structure

Allowable Remuneration

Proposed

Allowable Remuneration

on the first INR 3,00,000 of the book profit

or in case of a loss

INR 1,50,000 or at the rate of 90 % of the book profit, whichever is more

on the first
INR 6,00,000 of the book profit or in case of a loss

INR 3,00,000 or at the rate of 90 % of the book profit,  whichever is more

on the balance of the book-profit

60%

on the balance of the book-profit

60%

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

Section

Old rates

Proposed new rates

Section 194D – Payment of insurance commission (in case of resident person other than company)

5%

2%

(with effect from April 1, 2025)

Section 194DA – Payment in respect of life insurance policy

5%

2%

(with effect from October 1, 2024)

Section 194G – Commission etc on sale of lottery tickets

5%

2%

(with effect from October 1, 2024)

Section 194H – Payment of commission or brokerage

5%

2%

(with effect from October 1, 2024)

Section 194-IB – Payment of rent by certain individuals or HUF

5%

2%

(with effect from October 1, 2024)

Section 194M – Payment of certain sums by certain individuals or Hindu undivided family

5%

2%

(with effect from October 1, 2024)

Section 194-O – Payment of certain sums by e-commerce operator to e-commerce participant

1%

0.1%

(with effect from October 1, 2024)

Section 194F – Payments on account of repurchase of units by Mutual Fund or Unit Trust of India

20%

Proposed to be omitted

(with effect from October 1, 2024)

New Section 194T – Payment of salary, remuneration, interest, bonus or commission by partnership firm to partners

NA

10% on various payments made to partners – salary, remuneration, interest, bonus or commission

(with effect from April 1, 2025)

New Section 193 – Interest paid exceeding on Floating Rate Savings (Taxable) Bonds (FRSB) 2020 with effect from October 1, 2024

NA

10% (threshold – exceeding INR 10,000)

(with effect from October 1, 2024)

Section 206(7) – Interest on late payment of TCS

1% per month or part of the month

1.5% per month or part of the month 

(with effect from April 1, 2025)

 

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.

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Frequently Asked Questions GET IN TOUCH WITH US

What does Treelife do?

Treelife provides comprehensive legal, financial, and compliance services tailored to the needs of startups, investors, and businesses. Our services include Virtual CFO, legal support, secretarial compliance, tax and regulatory advisory, and assistance with global market entry.

Can Treelife assist with setting up a business in India?

Yes, Treelife provides end-to-end support for setting up a business in India. Our services include market entry strategy, company registration, regulatory compliance, and ongoing back office support to ensure a smooth and successful setup.

What is your experience of working with investors and AIFs?

Treelife has a robust track record of working with investors and Alternative Investment Funds (AIFs). We offer comprehensive support for fund setup, tax structuring, SEBI applications, due diligence, and ongoing compliance, ensuring smooth operations and successful investments.

How is your pricing model?

Treelife offers a flexible and transparent pricing model tailored to the specific needs of your business. Our pricing is structured based on the scope and complexity of the services required and works on the following basis: project-based, where there is a one-time fee; retainer, with ongoing services for a fixed monthly fee; hourly, based on the number of hours worked; and an equity sharing model, where payment is made through a share of equity in your business. This approach ensures you receive the best value for your investment.

Are there any hidden fees or additional costs?

No, Treelife believes in transparency and ensures there are no hidden fees or unexpected charges. All costs are clearly outlined in our engagement proposal, and any additional expenses will be discussed and approved by you before being incurred.

Can Treelife assist with setting up a business in India?

Yes, Treelife provides end-to-end support for setting up a business in India. Our services include market entry strategy, company registration, regulatory compliance, and ongoing back office support to ensure a smooth and successful setup.

Can Treelife assist with international market entry?

Yes, Treelife offers extensive support for businesses looking to expand globally. Our services include jurisdiction evaluation, regulatory assessment, and execution support for market entry, ensuring compliance and smooth operations in new markets.

Do you help in raising funds?

Yes, Treelife supports startups and businesses during their fundraising process. While we are not an investor or fund, we offer comprehensive services such as preparing investor-ready documents, conducting due diligence, financial modeling, and providing strategic advisory to help you successfully raise the capital you need.

What is transaction services?

Our transaction services encompass advisory and documentation support for various financial transactions, including private equity/venture capital (PE/VC) deals, mergers and acquisitions (M&A), and venture debt. We ensure smooth and compliant transactions, from due diligence to closure.

I am just a startup, I need all services, can you help me?

Absolutely! Treelife specializes in supporting startups with a wide range of services. From legal support and virtual CFO services to secretarial compliance and tax advisory, we provide end-to-end solutions to help your startup grow and succeed.

What does Treelife do?

Treelife provides comprehensive legal, financial, and compliance services tailored to the needs of startups, investors, and businesses. Our services include Virtual CFO, legal support, secretarial compliance, tax and regulatory advisory, and assistance with global market entry.

What is your experience of working with investors and AIFs?

Treelife has a robust track record of working with investors and Alternative Investment Funds (AIFs). We offer comprehensive support for fund setup, tax structuring, SEBI applications, due diligence, and ongoing compliance, ensuring smooth operations and successful investments.

What is the profile of the members working at Treelife?

Our team at Treelife is made up of experienced professionals, including lawyers, Chartered Accountants (CAs), and Company Secretaries (CS), with diverse backgrounds in finance, law, compliance, and business advisory. Each member brings specialized knowledge and practical expertise to help our clients navigate complex legal and financial landscapes effectively.

Have you worked with startups before?

Yes, we have extensive experience working with startups across various industries. We understand the unique challenges faced by startups and provide tailored solutions to support their growth, from incorporation to fundraising and beyond.

What sets Treelife apart from other service providers?

Treelife stands out due to our integrated approach, combining legal, financial, and compliance expertise under one roof. Our personalized service and deep domain expertise of the Indian market ensure that we deliver solutions that are both strategic and practical.

How do you ensure data security and confidentiality?

Treelife prioritizes the security and confidentiality of your data. We use secure servers, encryption, and access controls to protect your information. Additionally, our team adheres to strict confidentiality agreements and industry best practices to safeguard your data.

Do I need to physically sign any documents?

No, physical signatures are generally not required. Treelife uses secure electronic signature platforms to facilitate the signing of documents, making the process quick and convenient for our clients. However, if physical signatures are necessary, we will coordinate the process with you.

Who will manage my account?

Your account will be managed by a dedicated SPOC who will be your primary point of contact. This person will coordinate with our team of experts to ensure all your needs are met and provide regular updates on the progress of your projects.

What tools or technologies are you equipped with?

Treelife is equipped with a comprehensive technology stack to ensure effective and efficent way to deliver our services. For bookkeeping, we use Tally, QuickBooks, Zoho, and Xero. Our data management is handled through Slack, Dropbox, and Google Drive. For payment processing, we utilize platforms like Kodo, Razorpay, Keka, and PayPal.These tools enable us to provide high-quality, reliable services tailored to your business needs.

I am based out of a location where Treelife doesn’t have an office, how do we work?

Treelife operates seamlessly with clients across various locations whether domestic or international through virtual communication and collaboration tools. We conduct meetings via video calls, share documents electronically, and stay in constant touch through emails and messaging platforms to ensure smooth operations regardless of your location.

How is your pricing model?

Treelife offers a flexible and transparent pricing model tailored to the specific needs of your business. Our pricing is structured based on the scope and complexity of the services required and works on the following basis: project-based, where there is a one-time fee; retainer, with ongoing services for a fixed monthly fee; hourly, based on the number of hours worked; and an equity sharing model, where payment is made through a share of equity in your business. This approach ensures you receive the best value for your investment.

Are there any hidden fees or additional costs?

No, Treelife believes in transparency and ensures there are no hidden fees or unexpected charges. All costs are clearly outlined in our engagement proposal, and any additional expenses will be discussed and approved by you before being incurred.

What is the typical turnaround time for your services?

The turnaround time for our services depends on the complexity and scope of the project. During the initial consultation, we provide an estimated timeline based on your specific needs and ensure timely delivery through efficient project management.

What is your payment schedule?

Our payment schedule is designed to be convenient and flexible. Typically, we operate on a milestone-based payment system, where payments are made at key stages of the project. We also offer customized payment plans based on your specific requirements.

How can I pay you?

Treelife accepts various payment methods to ensure ease and convenience for our clients. You can pay us via bank transfer, or other electronic payment methods. Detailed payment instructions will be provided upon engagement.

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