Daily Prelims Notes 26 May 2023

Daily Prelims Notes

26 May 2023

Table Of Contents

1. Angel Investor Categories, New Angel Tax Regime
2. Fallback liability Clause in e-commerce Rules
3. The Green Deposit Framework

1. Angel Investor Categories, New Angel Tax Regime

Subject : Economy

Section: Fiscal policy

Angel fund is a sub-category of Venture Capital Fund (VCF) under Category-I Alternative Investment Fund (AIF) that raises funds from angel investors

Key Points:

• It raises funds by way of issue of units to angel investors. “Angel investor” means any person who proposes to invest in an angel fund and satisfies following:
  • net tangible assets of at least Rs. 2 crore,
  • Has investment experience, or is a serial entrepreneur, or is a senior management professional with at least ten years of experience
• Conditions for an Angel Fund:
  • It is a body corporate with a net worth of at Rs. 10 crore
  • It is an AIF registered under SEBI (Alternative Investment Funds) Regulations, 2012 or a VCF registered under the SEBI (Venture Capital Funds) Regulations, 1996.
  • It shall accept, up to a maximum period of 3 years, an investment of not less than 25 lakh from an angel investor.
  • Not have more than 49 angel investors.

Taxation Treatment of Angel Funds:

Exemption: Government has set two separate criteria for tax exemptions

1. Investment in startups recognized by the Department of Promotion of Industry and Internal Trade (DPII) of the Commerce Ministry. This is to support domestic start-ups.
2. Certain entities (see below) incorporated in any of the 21 specified countries are exempt. This is to attract more FDI from countries that have a robust regulatory framework. Exempt entities have to belong to one of the following:

• Government and government-related investors such as central banks, Sovereign Welth Funds, International or multilateral organisations with government having equity of 75% or more.
• Banks or Insurance companies, entities registered with the SEBI as Category-I foreign portfolio investor (FPI)
• Endowment Funds associated with a university, hospital or charity
• Pension Funds

2. Fallback liability Clause in e-commerce Rules

Subject : Economy

Section: Fiscal policy

The Ministry of Consumer Affairs notified the Consumer Protection (E-Commerce) Rules, 2020 under the Consumer Protection Act, 2019. Several changes were brought to the E-Commerce Rules in June 2021, which included specific flash sales, mis-selling of goods and services, the appointment of grievance redress mechanisms. It also introduced the concept of ‘fallback liability’.

Fallback liability intends to make e-commerce platforms responsible for any negligence or wrongdoings of sellers in relation to product delivery or sale of defective products.

The Issue:

• Under the Consumer Protection Act, 2019, the seller is held accountable for selling a defective product or causing harm to the consumer through it. However, under the ecommerce rules, the platforms, not sellers will be held liable/responsible.
• It has been pointed out that FDI norms prevent these platforms from having control over the inventory sold on their sites but they are being made responsible for quality of the products.

Possible adverse Impact of the provisions:

• Marketplaces as well as consumers may adopt risk averse strategies that limit their engagement to large sellers having the resources to shoulder consumer liability and ensure product quality standards.
• Can impact the growth of the digital economy, and restrict MSMEs from benefiting from rise of e-commerce
• May worsen the ease of doing business in India by increasing legal, compliance burden for any new enterprise.
• It will also increase the regulatory burden and costs for the companies too.
• It does not penalize bad actors that may “game” the framework as they are shielded from direct action. This will create a negative bias even against genuine small sellers.

3. The Green Deposit Framework

Subject : Economy

Section: Monetary Policy policy

A green deposit is an interest-bearing instrument received by banks for a fixed period, the proceeds of which are earmarked for green-financing, such as funding of renewable energy projects. The Reserve Bank of India (RBI) in April 2023 issued a framework for banks to accept and promote green deposits. At present banks offering green Housing Development Finance Corp (HDFC), IndusInd Bank, Federal Bank, HSBC and DBS Bank. It is a step towards ESG (Environmental, Social, and Governance) investing.

Some pointers as per the RBI framework:

• Banks will offer the deposits as cumulative/ non-cumulative deposits. On maturity, the green deposits would be renewed or withdrawn at the choice of the depositor.
• The green deposits shall be denominated in rupees only.
• Banks and NBFCs shall put in place a comprehensive board-approved policy on green deposits, laying down all aspects in detail for the issuance and allocation of green deposits.
• The framework applies to all scheduled commercial banks and small finance banks (except for regional rural banks and local area banks) and non-banking finance companies (including housing finance companies).
• Both corporate and individual customers can invest in green deposits.
• Allocation of funds raised through green deposits during a financial year shall be subject to an independent Third-Party Verification (TPV) on an annual basis.

Where can the money be invested:

• Although banks offer nearly similar interest rates on both green deposits and fixed deposit schemes, the end-use of the funds is different.
• The differences between use of fixed deposit and green deposit can be seen in table below: