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Alerts:

Regulatory Alert FIPB phased out and Revamped Startup India rules

26 May 2017

REGULATORY ALERT

  1. FIPB to be phased out

The Foreign Investment Promotion Board (‘FIPB’) has been acting as a single window clearance for applications on Foreign Direct Investment (‘FDI’) in India that are under the approval route.

In the Budget 2017, the finance minister had indicated that more than 90% of the total FDI inflow in India is now through the automatic route and the country has reached at a stage where FIPB, as a governing body, can be phased out.

Further to the announcement in the Budget 2017, on 24 May 2017, the Union cabinet, vide a press release, has given its formal approval to the phasing out of the FIPB.

Henceforth, the FDI application processing and approval of the Government thereon shall now be handled by the concerned Ministries/Departments in consultation with the Department of Industrial Policy & Promotion (‘DIPP’), Ministry of Commerce and Standard Operating Procedure for processing of applications shall be issued in due course.

BDO’s comment

This is a welcome move for the India Inc. as it will give the necessary impetus for attracting FDI in India. The phasing out of FIPB and transferring the duties to individual concerned Ministries / Departments would definitely assist in bringing speedy disbursal of applications and more focused approach to each sector.

  1. Overhauling of the ‘Startup India’ initiative

The DIPP, vide notification dated 23 May 2017, has overhauled the ‘Startup India’ initiative by modifying the conditions related to Startups. The erstwhile regime governing the ‘Startup India’ initiative was replaced with new set of definitions and conditions.

Key amendments to the ‘Startup India” initiative is as under:-

Criteria which are amended

 Old Regime

Amended Regime

Incubation period1 for eligible entities2 to be considered as ‘Startup’

5 years

(All business sectors)

 

7 years

(Other than Biotechnology Sector) and 10 years (Biotechnology Sector)

 

 

Nature of business covered under the Startup Initiative

Innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property

Innovation, development or improvement of products or processes or services, or if it is a scalable business model with a high potential of employment generation or wealth creation

Pre-requisite requirement of letter of recommendation / support

Pre-requisite requirement of submitting recommendation letter or letter of support from incubator /  Government /  State / Fund / Angel Fund / Private Equity Fund/ Accelerator/ Angel Network  or a patent

Only online application along with the Certificate of Incorporation/ Registration is mandatory. Other information could be sought by the approving authority

Conditions for availing tax benefits

Eligible business certificate required from Inter-Ministerial Board of Certification

Innovativeness

No clarity on how innovativeness should be judged

Innovativeness shall be considered from a domestic standpoint

[1]Incubation Period starts from the date of Incorporation/ Registration of an entity

[2]Eligible entities means entity incorporated as a Private Limited Company or registered as a Partnership firm or Limited Liability Partnership firm in India.

The other aspects such as turnover requirement, etc. remain unchanged.

BDO’s comment

The revamped ‘Startup India’ policy with its increased span of incubation period, inclusion of employment generating businesses, elimination of stringent documentary requirements and focus on domestic level innovativeness should go a long way in boosting and energising the Indian entrepreneurs and innovators.