RBI Notifies Amended Forex Rules For Startups

To enable ease while doing business for startups, the Reserve Bank of India (RBI) has notified the amended Foreign Exchange Management Regulations, 2024. 

Dated November 19, the new amendments pave the way for the inclusion of the revised definition of startups, as per a 2019 order by the Department for Promotion of Industry and Internal Trade (DPIIT), in the updated forex rules. 

Called Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Fourth Amendment) Regulations, 2024, the new rules are aimed at simplifying the process and clearing the ambiguity among authorised dealer banks regarding opening of foreign currency bank accounts for DPIIT-recognised startups.

Previously, an entity could be designated as a startup only for a period of five years and if it had a turnover lower than INR 25 Cr. However, DPIIT’s 2019 notification relaxed the threshold to ten years from the date of incorporation  and a higher turnover limit of INR 100 Cr was put in place under the liberalised regime. 

These changes will now reflect in the amended forex rules as well and will enable more DPIIT-recognised startups to open and maintain interest-bearing accounts in Indian Rupees or foreign currency. 

There are more than 1.5 Lakh startups registered with the DPIIT. Being registered with the department allows startups to avail a slew of sops including tax exemptions, fewer compliances and no inspections for labour laws for a specific period. 

It is pertinent to note that the Budget 2024-25 earlier this year had also proposed harmonising the definition of a ‘startup’ across various legislations for ease of doing business.

For the uninitiated, the Indian government introduced FEMA in 1999, replacing the Foreign Exchange Regulation Act (FERA) of 1973, with an eye on facilitating external trade and forex payments. 

For Indian startups that deal in foreign exchange, FEMA compliance is mandatory for a slew of reasons including receiving and paying foreign currency, acquiring and transferring immovable property outside India, opening and maintaining foreign currency accounts, and investing in foreign companies.