India Regulatory Brief: Startups May Be Exempt from Local State Laws, Companies Act Norms Relaxed for IFSC Firms

January 16, 2017 Posted by India Briefing Reading Time: 5 minutes

Government Asks States to Exempt Startups from Local State Laws

In keeping with the government’s goal of a flourishing startup sector in India, the government is in discussion with state governments to allow startup firms to get exempt from local laws, including labor regulations. Many such firms get entangled into regulatory and tax disputes as their evolution propels them into legal grey areas, with the need for the updation of regulatory norms and laws. This is why the central government is considering a more flexible approach, whereby startups can benefit from regulatory easing.

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So far only ten states have cooperated in terms of exempting startups from various local laws and labor regulations, though the details of this agreement have yet to be finalized. An instance of industry regulations playing catch-up to the challenge posed by entrepreneurial disruption was observed in the case of cab aggregators battling both the respective state and central governments as well as taxi and autorickshaw (three-wheeler) unions last year.

Additionally, the central government is contemplating organizing startups into two stages, namely, the early-funds stage and the growth stage. Further, the department of industrial policy and promotion (DIPP) is reforming its US$1.47 billion (Rs100 billion) startup funding scheme by incentivizing venture capital (VC) funds to invest in startups while reducing overall capital risks. This means that VC funds will now be allowed to invest half of the US$1.47 billion corpus in startups and the rest of it in established firms, instead of the mandated 100 percent investment in startups.

Central Excise and Service Tax Payers Move to GST

India’s Central Board of Excise & Customs (CBEC) has started the migration of central excise and service taxpayers to the Goods and Services Tax Network (GSTN), effective January 9, 2017. Existing taxpayers need to login to the ACES (Automation of Central Excise and Service Tax) portal to receive provisional login details for the Goods and Services Tax Network (GSTN). The login details will allow taxpayers to access the GST portal to submit required documents.

Value Added Tax (VAT) assessees under the State Commercial Tax department who are already in the process of migrating to GST require no further action. The Permanent Account Number (PAN) is mandatory for the migration. The CBEC has also started to notify via email alerts and telephone messages to all assessees, informing them about the move to GST. The last date for migrating to GST is January 31.

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PAN is Mandatory for All Bank Account Holders

The Central Board of Direct Taxes (CBDT) has amended existing income-tax rules while directing banks to obtain and link the Permanent Account Number (PAN) or Form 60 (in the absence of PAN) belonging to all existing account holders by February 28.. Basic Savings Bank Deposit Accounts (BSBDA) are excluded from the amendment. Banks and post offices are also required to submit information about cash deposits between April 1, 2016 and November 8, 2016 for accounts holding deposits greater than US$3676.5 (Rs 250,000) between November 9, 2016 and December 31, 2016.

Form 60 is available in the banks while one can apply for PAN online through the National Securities Depository Limited portal. In addition, the government from January 1 began issuing newly designed PAN cards to make them tamper proof with added security features.

Companies Act Norms Relaxed for Firms Operating in IFSCs

On January 4, the central government announced that private firms established in international financial services centers (IFSC) will be exempt from several norms in the Companies Act of 2013. An IFSC company provides services to customers located outside the domestic economic jurisdiction and are based in special economic zones (SEZs). Such firms manage the movement of finance, financial products, and services across borders. A list of 39 modifications or exemptions are listed on the Ministry of Corporate Affairs (MCA) website.

Further, various tax concessions will be granted to firms licensed to operate out of IFSCs such as transaction taxes and stamp duties. This move by the central government is more than likely to encourage private firms to set up at the Gujarat International Finance Tec-City (GIFT City), inaugurated in April 2015 as India’s first IFSC.

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