The Government Announces Updated Forex Regulations for Startups

The Reserve Bank of India (RBI) has announced the updated Foreign Exchange Management Regulations, 2024, to make it easier for startups to conduct business. The November 19 modifications open the door for the updated FX rules to incorporate the Department for Promotion of Industry and Internal Trade's (DPIIT) 2019 decision on the amended definition of startups.

With regard to opening foreign currency bank accounts for DPIIT-recognised startups, the new regulations, known as the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) (Fourth Amendment) Regulations, 2024, are intended to streamline the procedure and eliminate any confusion among authorised dealer banks.

Reason For the Amendment

In the past, a company could only be classified as a startup if it had a turnover of less than INR 25 Cr and for a maximum of five years. DPIIT's 2019 notification, however, raised the turnover cap to INR 100 Cr under the liberalised system and loosened the threshold to ten years from the date of formation. More DPIIT-recognized startups will be able to create and maintain interest-bearing accounts in Indian Rupees or foreign currency as a result of these changes, which will also be reflected in the updated forex regulations.

The DPIIT has more than 1.5 lakh registered startups. Startups that register with the agency are eligible for a number of benefits, such as tax deductions, reduced compliance requirements, and temporary immunity from labour law inspections. For ease of doing business, it is important to remember that earlier this year, the Budget 2024–25 recommended harmonising the concept of a "startup" across multiple laws.

Foreign Exchange Management Act

In order to facilitate foreign exchange payments and trade with other countries, the Indian government replaced the Foreign Exchange Regulation Act (FERA) of 1973 with the Foreign Exchange Management Act (FEMA) in 1999. For a variety of reasons, such as receiving and paying foreign currency, purchasing and transferring real estate outside of India, opening and maintaining foreign currency accounts, and investing in overseas businesses, FEMA compliance is required for Indian startups that deal in foreign exchange.

According to Mayank Arora, Regulatory Director at Nangia Andersen India, the recent change to the FEM (Foreign Currency Accounts by a Person Resident in India) Regulations is consistent with the DPIIT's most recent notification, which aims to standardise the definition of a startup.

The RBI's Foreign Exchange Management (Deposit) (Fourth Amendment) Regulations, 2024, added a new clause that permits authorised dealers in India to open and manage interest-bearing accounts in foreign currencies or Indian Rupees for non-resident individuals.

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StartupTalkyNitin Konde