Indian Govt. Relaxes Deposit Norms For Startups

Indian government has taken yet another step to boost startup ecosystem of the country. Any advance of more than INR 25 lakh to a startup from-alternate investment fund, domestic venture capital funds as well as mutual funds registered with SEBI-has now been exempted from being treated as deposit.

Earlier, according to the Companies Act of 2013, any company including startups that received money from any person for over 365 days, was considered as a deposit. This makes startups to follow stringent regulations such as informing the registrar, maintaining the deposit repayment reserve and getting credit rating, before raising the money for over 365 days.

Ansul Jain, partner, Luthra & Luthra Law Offices, said, “Crowd funding and raising money through angel rounds for more than a year was earlier considered as a deposit. Startups were flouting this norm. Now, they have been exempted.”

As per new rule, the person giving the money has to do it in form of convertible note. A convertible note means an instrument either converted into equity or repaid within five years from the date of funding.

Also, the exemption has only been made for companies that could be defined as startups under the notification issued by Department of Industrial Policy and Promotion (DIPP).

As per DIPP, startup is a company up to five years from the date of its incorporation only if its turnover for any of the financial years has not exceeded Rs 25 crore, and it is working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.

The tenure of the convertible debentures has been raised from five to ten years and has also exempted money raised through unsecured NCBs by the corporate affairs ministry.

Earlier this year in March, the government has also relaxed procurement norms, related to experience and turnover for micro, small and medium startups with a view to enable these ventures to be part of its public procurement. In 2015, SEBI also relaxed its norms regarding listing and raising funds through a dedicated platform on domestic stock exchanges, rather than going overseas.

Recently, Modi government has also approved INR 10, 000 crore ‘Fund of Funds for startups’.