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The Companies Act, 2013 (the “Act”), has introduced significant changes to the rules governing application monies received by companies through private placement and preferential allotment of shares, aiming at enhanced transparency, protection of investor interests, and ensuring timely utilization of funds.

This article outlines the key provisions and implications of non-compliance regarding the refund of
application monies under the Act.

Following the recent budget announcement, which aimed to simplify regulations for Foreign Direct Investment (FDI) and Overseas Investment (ODI), the Department of Economic Affairs has amended the FEMA (Non-debt Instruments) Rules 2019. A significant aspect of this amendment is the introduction of a new provision that enables FDI-ODI swaps. We have curated a slide below to help you understand this better.

𝘖𝘵𝘩𝘦𝘳 𝘢𝘮𝘦𝘯𝘥𝘮𝘦𝘯𝘵𝘴:

1. Investment by OCIs on non-repat basis 𝐞𝐱𝐜𝐥𝐮𝐝𝐞𝐝 from calculation of indirect foreign investment. Earlier only NRI investment was excluded.

2. Aggregate FPI cap of 49% of paid-up capital on a fully diluted basis has now been removed. FPIs now required to 𝐨𝐧𝐥𝐲 𝐜𝐨𝐦𝐩𝐥𝐲 𝐰𝐢𝐭𝐡 𝐬𝐞𝐜𝐭𝐨𝐫𝐚𝐥 𝐨𝐫 𝐬𝐭𝐚𝐭𝐮𝐭𝐨𝐫𝐲 𝐜𝐚𝐩.

3. ‘White Label ATM Operations’ has been recognized as a new sector, with 100% 𝐅𝐃𝐈 𝐧𝐨𝐰 𝐚𝐥𝐥𝐨𝐰𝐞𝐝 𝐮𝐧𝐝𝐞𝐫 𝐭𝐡𝐞 𝐚𝐮𝐭𝐨𝐦𝐚𝐭𝐢𝐜 𝐫𝐨𝐮𝐭𝐞.

Key Indian players in this sector: India1 Payments, Indicash ATM (Tata Communications), Vakrangee, and Hitachi Payments.

4. NR to NR transfer will require prior Govt approval 𝐰𝐡𝐞𝐫𝐞𝐯𝐞𝐫 𝐚𝐩𝐩𝐥𝐢𝐜𝐚𝐛𝐥𝐞. In the erstwhile provisions, it was required only if investment in the specific sector required prior Govt approval.

5. Definitions – Control now defined in Rule 2, and definition of “startup company” has been aligned with “startups” recognised by DPIIT vide notification dated February 19, 2019. Definitions of “control” and “startup company” elsewhere have been deleted.

Business Overview

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

 

Project Undertaken

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

 

How We Helped?

Review of Accounts and Tax Filing:

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

Fundraising (Compliance Advisor):

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

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

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

 

Business Overview

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

 

Project Undertaken

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

 

Structure Mechanics:

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

 

Parameters:

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

 

Facts:

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

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

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

 

Business Overview

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

 

Project Undertaken

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

 

How We Helped?

Setting Up:

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

Bookkeeping and Accounting:

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

Fundraising & Vendor Due Diligence:

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

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

The IFSCA issued a consultation paper yesterday proposing an “informal guidance” framework, summarized below:

𝐖𝐡𝐨 𝐜𝐚𝐧 𝐫𝐞𝐪𝐮𝐞𝐬𝐭:

• Existing players in IFSCA

• Persons intending to undertake business in IFSC

• Others as may be specified

𝐓𝐲𝐩𝐞𝐬 𝐨𝐟 𝐠𝐮𝐢𝐝𝐚𝐧𝐜𝐞:

• No-Action Letters: Request IFSCA to indicate whether or not it would take any action if the proposed activity/ business/ transaction is carried out

• Interpretive Letters: Request for IFSCA’s interpretation of specific legal provisions

𝐏𝐫𝐨𝐜𝐞𝐬𝐬:

Application fee: USD 1,000

IFSCA aims to respond to requests within 30 days

The consultation paper invites stakeholders / public to submit feedback by September 10, 2024 via email This is a proactive approach by the IFSCA to foster transparency and provide support to entities operating or looking to operate within the IFSC, ensuring that they have the necessary guidance to comply with the evolving regulatory landscape.

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We’re thrilled to share the remarkable growth in fund management activities at GIFT-IFSC! Our latest infographic highlights the significant increase in the number of FMEs and funds, investment commitments, and quarterly growth. This impressive surge underscores the expanding scale and acceptance of GIFT-IFSC as a premier fund management hub.

IFSCA has released a Circular prescribing the fees for the newly introduced Book-keeping, Accounting, Taxation, and Financial Crime Compliance Services (BATF) Regulations.

𝐅𝐞𝐞 𝐒𝐭𝐫𝐮𝐜𝐭𝐮𝐫𝐞:
– 𝐀𝐩𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 𝐅𝐞𝐞𝐬: $1,000 per activity
– 𝐑𝐞𝐠𝐢𝐬𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐅𝐞𝐞𝐬: $5,000

𝐀𝐧𝐧𝐮𝐚𝐥 𝐅𝐞𝐞𝐬 𝐟𝐨𝐫 𝐒𝐞𝐫𝐯𝐢𝐜𝐞 𝐏𝐫𝐨𝐯𝐢𝐝𝐞𝐫𝐬:
– Less than 500 employees: $5,000 per activity
– 500 to 1,000 employees: $7,500 per activity
– More than 1,000 employees: $10,000 per activity

𝐊𝐞𝐲 𝐏𝐨𝐢𝐧𝐭𝐬 𝐟𝐨𝐫 𝐄𝐱𝐢𝐬𝐭𝐢𝐧𝐠 𝐀𝐧𝐜𝐢𝐥𝐥𝐚𝐫𝐲 𝐒𝐞𝐫𝐯𝐢𝐜𝐞 𝐏𝐫𝐨𝐯𝐢𝐝𝐞𝐫𝐬 (𝐀𝐒𝐏𝐬):
– Existing ASPs rendering BATF services under the IFSCA ASP Framework are not required to pay the application fee for the same activity under BATF regulations.
– Annual/recurring fees will be adjusted for the fees already paid under the ASP framework.

𝐈𝐦𝐩𝐨𝐫𝐭𝐚𝐧𝐭 𝐃𝐚𝐭𝐞:
– Existing ASPs must communicate their willingness to operate under the new BATF regulations for bookkeeping, accountancy, and taxation services by August 2, 2024.

𝘍𝘰𝘳 𝘮𝘰𝘳𝘦 𝘥𝘦𝘵𝘢𝘪𝘭𝘴, 𝘤𝘩𝘦𝘤𝘬 𝘰𝘶𝘵 𝘵𝘩𝘦 𝘊𝘪𝘳𝘤𝘶𝘭𝘢𝘳 𝘩𝘦𝘳𝘦: http://surl.li/yxvqex

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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.

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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Labour legislations in India find their basis in the Constitution, through the fundamental rights (specifically, the Rights to Equality; to Freedom; and against Exploitation) and the directive principles of state policy (contained in Articles 38, 39, 41, 42, and 43). It is therefore critical for startups to understand that labour laws in India are fundamentally welfare legislations, imposing significant compliance responsibility on employers as a result of a socialist outlook seeking to protect the dignity of human labour.

The labour law framework in India is intricate, often leading to confusion due to the dual roles of the central and state governments. For example, while central laws like the Industrial Employment (Standing Orders) Act, 1946, dictate terms of employment, state-specific Shops and Establishments Acts also prescribe similar conditions but with variations, necessitating detailed assessments to determine applicable compliances.

Moreover, the enforcement of many central laws is managed by state authorities, leading to inconsistencies in application across different states. For instance, the enforcement of the Payment of Gratuity Act, 1972 varies by state, leading to discrepancies in legal compliance across regions. For example, in Karnataka, Telangana, and Andhra Pradesh, specific gratuity requirements are mandatory, but not in other states.

The landscape’s complexity is exacerbated by the legal definitions of terms like “workman” and “employee” (often used interchangeably in common parlance) which differ significantly across laws and affect the applicability of protections and remedies. For instance, where the Minimum Wages Act, 1948 specifically identifies employment which would be protected by the provisions of the act, the Industrial Disputes Act, 1947 prescribes exclusionary criteria to identify persons who cannot seek remedy from the labour courts under the act.

To address these structural issues, the Government of India has proposed a complete overhaul of the labour laws in India. The proposed Labour Codes are the product of a long drawn process initiated around 2016, and aiming to simplify and reduce ambiguities in law enforcement across states, making it easier for startups to understand and comply with labour regulations, thereby fostering a more straightforward regulatory environment conducive to business operations and growth.

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India’s Space Technology Sector: An Industry Overview

The Indian space sector is currently undergoing a significant transformation, driven by increased private sector participation and substantial government support. With over 523 private companies and research institutions now actively contributing, India’s space economy is projected to reach $44 billion by 2033, capturing nearly 10% of the global market. This manual aims to provide comprehensive insights into the industry overview, investment landscape, legal considerations, tax incentives, and intellectual property rights essential for stakeholders in the space tech ecosystem.

Government Initiatives and Investment Landscape

The government has allocated nearly $1.6 billion for the Department of Space (DoS), which oversees the Indian Space Research Organisation (ISRO) and other space-related activities. Since 2014, there has been a notable increase in private investments, particularly in satellite manufacturing and launch services, amounting to $233 million across more than 30 deals by July 2023.

Key Participants and Activities

The Indian spacetech ecosystem comprises a mix of public and private entities working collaboratively to advance the country’s space capabilities. Key activities include:

• Satellite manufacturing
• Launch services
• Space research
• Space-based applications
• Space exploration
• Space debris management
• Commercial spaceflight
• Development of space law and policy

Regulatory Framework

India’s space sector operates under a comprehensive legal and regulatory framework designed to promote innovation and facilitate private sector participation.

Key regulatory bodies and agencies include:

• Department of Space (DoS)
• Indian Space Research Organisation (ISRO)
• Indian National Space Promotion and Authorization Center (IN-SPACe)
• NewSpace India Limited (NSIL)
• Antrix Corporation Limited (ACL)

Foreign Direct Investment (FDI) Policy

The existing FDI policy allows up to 100% foreign investment in satellite establishment and operation through the government route. Proposed amendments aim to further liberalize the sector, but gaps and ambiguities remain, particularly regarding compliance with sectoral guidelines and definitions of key terms.

Tax Incentives and Government Schemes

To encourage private participation, several tax measures have been implemented, including GST exemptions for satellite launch services and income tax exemptions for R&D expenditures. Key government schemes supporting the sector include:

• Startup India Seed Fund Scheme
• Technology Development Fund under DRDO
• iDEX (Innovations for Defence Excellence)
• Atal Innovation Mission (AIM)

GIFT City IFSC: A Gateway to Global Markets

GIFT City (Gujarat International Finance Tec-City) provides a favorable regulatory environment, cutting-edge infrastructure, and a robust ecosystem for space tech companies. It facilitates funding, international collaboration, and regulatory support, making it an ideal gateway for scaling operations and innovation.

Anticipated Developments

The Indian space tech sector is poised for significant growth, driven by increased FDI, public-private partnerships, advanced technologies, and upcoming incentives. The development of reusable launch vehicles and the Gaganyaan mission, slated for 2025, are set to showcase India’s capabilities and bolster its position in the global space community.

Conclusion

India’s space technology sector is at a pivotal moment, characterized by unprecedented growth, innovation, and collaboration. This report serves as a comprehensive guide for industry players, investors, policymakers, and legal professionals navigating the landscape of India’s space tech ecosystem. The combined efforts of public and private entities are driving the sector’s ascent, positioning India as a major player in the global space economy.