Start-up Current Affairs - 2019
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The Reserve Bank of India (RBI) will be issuing guidelines within two months for the fintech companies to test their new products on a small group of users before scaling up. This regulatory sandbox will help fintech companies to launch innovative products at a lower cost and in less time and enable fintech companies to conduct live or virtual testing of their new products and services.
A Sandbox is a framework set up by a regulator that allows FinTech start-ups to conduct live experiments in a controlled environment under supervision.
Benefits from Regulatory sandbox
- Regulatory sandbox will provide a well-defined space for the companies to develop new products.
- Regulatory sandbox allows for experimenting with their products and fintech solutions. In case of failure, the consequences would be contained and the reasons will be analysed for betterment.
- Regulatory Sandbox’ would benefit FinTech companies by way of reduced time to launch innovative products at a lower cost.
The RBI’s working group on FinTech and digital banking in 2017 had recommended that a regulatory sandbox/innovation hub be introduced within a well-defined space and duration to experiment with FinTech solutions, where the consequences of failure can be contained and reasons for failure analysed.
The government has relaxed the norms under the definition of Start-Ups. The changes brought in are:
- The investment limit of angel investors to seek exemption under the Income Tax Act, 1961 has been increased to Rs 25 crore from 10 Crore.
- An entity shall be considered a start-up up to 10 years from its date of incorporation/registration instead of the previous period of 7 years.
- An entity would be considered as a startup up to a turnover of Rs 100 crore as against the earlier limit of Rs 25 crore.
- A start-up cannot invest in a building or land unless it is for its business or used by it for purposes of renting or held by it as stock-in-trade.
- A start-up cannot offer loans or advances, other than those where lending money is part of its business.
- A start-up cannot make any capital contribution to any other entity or invest in shares, car, any vehicle or mode of transport that costs more than Rs 10 lakh.
These exemptions were brought in to allay the fears of CBDT that start-ups could be used for money laundering or receive investment from shell companies for tax evasion.
The relaxations are in line with the government’s vision to promote the culture of entrepreneurship and ease of doing business in India.