Reverse flip rush likely to drive Rs.20,000 crore revenue

India’s tax department could see a major revenue increase estimated at around Rs.20,000 crore over the coming year as several high-profile start-ups move to “reverse flip” their corporate structures back to India, noted experts.Companies like Flipkart and Pine Labs, along with over half-a-dozen other venture-capital-backed start-ups, are currently in the process of shifting from locations like Singapore and the U.S. back to India to enable domestic IPOs, which will allow them to be eligible for Indian public listings and subsequently contribute to the country’s tax revenues.The trend gained momentum with recent high-profile reversals, including Walmart-backed PhonePe’s January 2023 move back to India, resulting in a tax payment of approximately Rs.8,000 crore. Similarly, Groww, another prominent start-up, made a substantial tax contribution during its restructuring. Officials report that the government is in discussions with additional high-value companies to facilitate similar transactions, each expected to result in considerable tax outflows.
Overseas Incorporation and Market Shifts Pre-pandemic, overseas incorporation was common among Indian start-ups, particularly those with foreign investors, seeking listings on exchanges like Nasdaq. However, India's capital markets have gained appeal, with successful local listings of companies such as Paytm and Zomato signaling investor readiness for tech IPOs. Additionally, Swiggy, according to information, is planning an Indian IPO, while the Nasdaq, once the preferred listing destination, has seen a decline in activity.
According to estimates,the benchmark Nasdaq index grew just 11% between 2022 and 2024, compared to a 33% rise in India's Sensex.Fundraising on Nasdaq has also dropped significantly, from a peak of $108 billion in 2021 to just $5 billion and $20 billion in 2022 and 2023, respectively, due to a "funding winter" (Startups often encounter periods of financial uncertainty, and it is referred to as 'Funding Winter.')for tech companies.
Reverse Flipping and Tax Obligations Reverse flipping involves transferring shareholder ownership from a foreign entity back to an Indian company. Although this transaction does not involve an outright sale, it triggers tax liabilities on share exchanges, making shareholders liable under India’s indirect tax provisions. Once an IPO occurs, further capital gains taxes apply to any shares sold. While the government has streamlined compliance, it maintains strict tax requirements for these restructurings, positioning India as a more attractive base for tech companies and supporting fiscal growth in the tech sector, noted analysts.

(Business Correspondent)