In the recent years, reverse flipping has again come into highlights as there are growing number of Indian startups initially incorporated (flipped) abroad, have begun re-domiciling to India. While stage one is flipping which happens when company originally "flips" by moving its legal or operational base from its home country to a foreign jurisdiction, to gain advantages like favorable tax regimes, investor-friendly regulations, or better access to global capital markets. Conversely, in case of reverse flipping, a company restructures to bring its legal domicile, operations, or intellectual property (IP) back to its home country which often involves complexity, such as merging the foreign entity with a domestic entity, transferring assets, or reincorporating in the home jurisdiction.
Prominent startups, such as Flipkart, PhonePe, and Razorpay, initially incorporated their parent companies abroad to capitalize on the benefits offered by these favorable regimes. However, with India's evolving economic landscape, reverse flipping became a strategic move for the homegrown ventures previously domiciled abroad realigning their legal and economic identity with the country they were built for and inspired by. This article offers an analytical deep dive into the concept of reverse flip exploring its rising trend, the regulatory innovations that have enabled it, the tax and accounting implications, its impact on India's startup ecosystem, and a comparative analysis with regimes such as Singapore and the UAE.
Modes and Mechanisms of Reverse Flipping in India
While flipping involves moving the entire ownership of an Indian entity to a foreign jurisdiction, reverse flipping is the opposite, integrating or re-domiciling the foreign parent entity back to India. In this process, the Indian subsidiary typically becomes the parent or holding company. India's regulatory framework offers various mechanisms for re-domiciliation, including share-swap arrangements, inbound mergers, and other alternatives like setting up new entities or liquidating foreign holding companies.
A share-swap arrangement, the most common method for reverse flipping, involves shareholders of the foreign-domiciled entity exchanging their shares for those of the Indian entity. While this approach is relatively straightforward, it can trigger significant tax implications, including capital gains tax, stamp duty, and other regulatory costs during the transfer of shares. On the other hand, an inbound merger, where a foreign entity merges with an Indian company, is a time-consuming court-bound process. Section 234 of the Companies Act, 2013, which permits cross-border mergers, mandates NCLT approval under Sections 230-232 of the Act. Even in cases where the foreign parent holds 100% ownership of the Indian subsidiary, the merger scheme requires approval from shareholders, creditors, regulators, and the NCLT, making it a lengthy procedure that can take 12–18 months.
Other alternatives, such as establishing new entities in India or liquidating foreign holding companies, may involve considerable costs, regulatory compliance, and integration planning, especially if the foreign parent holds significant intellectual property or assets. Similarly, liquidation of foreign holding companies and share transfers followed by capital reduction involve legal and tax issues, including potential double taxation, exit taxes, and fulfilling liquidation requirements in the foreign jurisdiction.
Regulatory Innovations Propelling Reverse Flipping through Fast-Track Mode
In September 2024, the Ministry of Corporate Affairs brought in a game-changer amendment: Rule 25A (5) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 now permits a foreign holding company to merge into its Indian wholly owned subsidiary through the "fast-track" merger route of Section 233, avoiding the NCLT. Instead of requiring tribunal's sanction, the scheme is now scrutinized and approved by the Central Government (via the Regional Director) on MCA, substantially reducing timelines to an estimated 3 to 4 months. Dream11 and Razorpay's reverse flips are among the first transaction under this accelerated regime.
The Union Budget 2025-26 further amplified this reform by expanding the eligibility horizon for fast-track mergers. The revised criteria now include a holding company and its wholly owned subsidiary, a small company and a startup company, two startup companies, or any other class or classes of companies, or a combination of all or any of these, as may be prescribed from time to time. This expansion is outlined in the amendments to the Companies Rules and also Section 233. This expansion is expected to simplify restructuring for startups, MSMEs, and private equity-backed businesses, potentially accelerating the wave of reverse flips and other mergers within India's dynamic entrepreneurial landscape.
How the Fast-Track Mechanism Works: The Rule 25A(5) regime practically merges the domestic fast-track mergers' ease with the cross-border regime. Essential conditions are: approval of RBI (which is considered as deemed in case automatic route), conforming to Section 233 eligibility conditions (such as 100% parent-subsidiary status, non-surrender of third-party creditor rights, declaration of solvency, 90 percent of shareholders voting in favour of the respective companies), and submission of the scheme of merger or amalgamation to the Regional Director rather than the NCLT. The Regional Director, may approve the merger, without any court hearing unless it deems fit and make an application before NCLT that the matter should be considered under Section 232. While such merger still requires approval from the boards and in essence from the shareholders of Indian company (by way of a special resolution) but the exclusion of an NCLT proceeding under the amended framework eased the overall timeline and administrative burden.
Companies Act & FEMA Interplay: This regulatory breakthrough reflects coordinated efforts between the Ministry of Corporate Affairs and foreign exchange authorities. Earlier provisions under Section 234 and Rule 25A mandated that cross-border mergers comply with FEMA regulations (including NDI Rules, Cross Border Merger Regulations). While this new regime facilitates a faster process by bypassing lengthy and cumbersome court procedures, it does not compromise on regulatory scrutiny and compliance, striking a balance between efficiency and adherence to legal and financial safeguards. This progressive stance underscores India's commitment to fostering a startup-friendly domicile without diluting the rigor of regulatory oversight.
Tax Implications: GST Hurdles, Income Tax Neutrality, and Accounting Treatment
Income Tax and "Amalgamation" Status: The reverse flip under the new fast-track regime is designed to be income tax neutral. The section 2(1B) of the Income Tax Act, 1961 defines an "amalgamation" such that, if specified conditions are satisfied, the transaction is given tax neutrality. Effectively, all assets and liabilities of the transferor company (Foreign Parent) must vest in the transferee (Indian Subsidiary), and at least 3/4th in value of shareholders in the transferor need to become shareholders in the transferee company. As a quid pro quo, Section 47 of the Income Tax Act provides an exemption from capital gains tax on such amalgamations, the merging company, as well as its shareholders, are not charged tax on the transfer of shares/assets under the merger. This is an important benefit of opting for a court-approved (now RD-approved) merger path over an easier share exchange transaction.
The choice of route significantly impacts tax liabilities, as seen in other reverse flips. If a Company performs a direct share exchange (overseas shareholders swapping their shares for Indian company shares without an official merger), such shareholders might have been subject to Indian capital gains tax on the exchange, subject to certain relief. Similarly, liquidation-based approaches can trigger double taxation or exit taxes in the foreign jurisdiction, significantly increasing the cost of re-domiciliation. In contrast, the tax neutrality offered by Section 47(6) of the Income Tax Act in court-driven mergers (NCLT or RD-approved) alleviates these burdens, ensuring that neither the company nor its shareholders face immediate tax obligations on the transfer of ownership to India. This critical benefit enhances the financial viability of reverse flipping, making the merger route a strategic choice for startups seeking to relocate to India.
Accounting (Ind AS 103 or AS-14) Considerations: Accounting for inbound mergers is governed either by the guidelines prescribed in Ind AS 103 (Business Combinations), namely the guidance on common control transactions (Appendix C of Ind AS 103) or AS-14 depending upon the applicability to the entity. Ind AS 103 applies to companies adopting Indian Accounting Standards, typically larger or listed entities, while AS-14 (Accounting for Amalgamations) applies to entities under the traditional accounting framework. Under the Ind AS 103, since the ultimate owners of foreign parent company are still the owners of the Indian entity after the merger (simply owning their interest directly in the subsidiary), the combination is a business combination of entities under common control. Ind AS 103 mandates that such transactions should be accounted under the pooling of interests method (used for common control transactions). In contrast, AS-14 provides flexibility, allowing companies to choose between the pooling of interests method and instead of the purchase method.
Under the pooling of interests method, the assets and liabilities of the foreign parent were kept in the Indian company's books at their carrying values as they stood (as they did in the consolidated books), without a step-up to fair value. No revaluation of goodwill or capital reserve is accounted for; rather, the foreign company's share capital is merely replaced by the fresh shares of the Indian company. Any variation between the foreign company's net assets and the issued face value of shares may be accounted for in a capital reserve on amalgamation. For example, in the case of Dream 11, the scheme sanctioned by the Regional Director specifically permitted the application of the pooling-of-interest method under AS-14 or Ind AS 103, as the case may be.
This accounting treatment is consistent with the principle that a reverse flip is nothing but a reorganization of the same business in a new location, not an acquisition. Unlike a traditional merger, this reverse flip preserves financial continuity, ensuring company's consolidated financial statements remain comparable pre- and post-merger, bolstering stakeholders' trust and ensuring IPO readiness. Many companies opting for the pooling of interests method reflects a strategic preference for maintaining financial continuity and simplicity, while avoiding the complexities of fair value adjustments and goodwill amortization.
Conversely, the purchase method, available under AS-14, involves restating assets and liabilities at fair values and allocating consideration to identifiable assets and liabilities. Any excess consideration is recognized as goodwill, amortized over up to five years unless justified otherwise. This method suits transactions akin to asset purchases, where the acquirer's strategic intentions involve specialized asset use or restructuring. It aims to reflect market values to align with investor expectations or revenue goals, emphasizing growth potential. Fundamentally, flexibility of AS-14 allows companies to select an accounting approach that aligns with the transaction's substance and their business aspirations, while the rigidity of Ind AS 103 ensures consistency for common control transactions. If the objective is to ensure operational continuity, the pooling of interests method is best suited, while the purchase method is more appropriate for transactions aimed at reaping strategic revaluation benefits.
A Homecoming Wave – Building Momentum
Companies like Dream11 and Razorpay's return to India is not unique, but a part of the tectonic shift currently underway in the Indian start-up ecosystem. Several of high-profile new-age companies have already boarded their ships to India over the last few years. PhonePe, Groww, Zepto and KreditBee are all belongs to list while some were eligible for fasttrack route others were not. A number of other start-ups are also working on similar strategy. Even Flipkart, India's e-commerce poster child that has been Singapore-domiciled for years, has "secured internal approvals" to relocate its domicile from Singapore to India before a rumored IPO. Pine Labs and Meesho are also in the queue, with Razorpay being the most recent to redomicile through the fast-track route Razorpay's CEO Shashank Kumar, remarked, "we started Razorpay with a dream to build for India, and today we are doubling down on that dream by making India not just our largest market, but our global headquarters". The Budget 2025-26's ambition for simplified mergers has further accelerated this wave, with Gujarat's GIFT City emerging as a tax-neutral hub for startups, potentially attracting at least 20 unicorns to re-domicile. The combined effect of these actions is substantial: it indicates that India is becoming an increasingly viable, even attractive – corporate HQ for startups that previously felt they had to incorporate overseas.
Why the Change of Heart?
A combination of circumstances characterized by opportunity and pragmatism is fueling this homecoming. One major reason is the maturing capital markets, increasing scrutiny by regulatory bodies and enforcement agencies and also exit options in India, with over 10 crore unique investors in 2024 compared to just 3 crore in 2020, fueling demand for tech IPOs. A couple of years back, a listing abroad (NASDAQ, etc.) or an acquisition was the preferred exit for Indian startups, so founders would sell holding companies to the US or Singapore upfront. Now, India's equity markets are mature, more than a dozen of India's technology startups (Zomato, Paytm, Nykaa, etc.) listed locally in recent years, and while there has been some volatilities, investor demand continues to be there for technology IPOs. Venture investors now believe that there can be a high-valuation exit inside India, eliminating a key reason to be off-shore. Regulatory and policy tailwinds also play a role. The government has also actively communicated a pro-startup approach through policies such as Startup India (2016), which brought in tax holidays, expedited incorporation, and simplified compliance for qualifying startups.
The Economic Survey 2022-23 highlights that over 39,000 compliances have been reduced and more than 3,500 provisions decriminalized remarkably easing the regulatory burden on startups and fostering a business-friendly environment.Keeping such a momentum in mind, the Economic Survey 2024-25 called for further deregulation of regulations and proposed manner of how it can done, particularly for MSMEs. It emphasizes that by continuing to reduce excessive regulatory burdens, businesses can become more efficient, reduce costs, and unlock new opportunities for growth. The "angel tax" (tax on startup equity investments over fair value) has been significantly relaxed, DPIIT-registered startups are exempt from its purview up to specified levels, and though the problem hasn't gone away, the reform story has been upbeat. There has also been abolition of other deterrents such as retrospective taxation in 2021, which enhanced India's reputation as a stable tax jurisdiction.
Round-tripping rules (which previously limited Indian-origin funds going out and coming back) have been eased, facilitating complicated shareholding structures to unwind. Furthermore, sector regulators in fintech and e-commerce have shown a preference for locally regulated entities. For instance, RBI's tighter oversight of payment aggregators and lending fintechs effectively nudged those businesses to have Indian-incorporated operating units incentivizing the whole group to be domiciled in India for compliance convenience.
Dual Pathways for Reverse Flipping
Rule 25A(5) marks a significant advancement in streamlining the reverse flipping process, offering a clear and efficient pathway through the fast-track merger route under Section 233 of the Companies Act. The use of "shall" in the rule emphasizes the preference for the fast-track process, ensuring that companies can benefit from an expedited procedure with approval from the Regional Director. While Section 233(14) allows companies eligible for the fast-track route to opt for the NCLT process if they wish, Rule 25A(5) specifies that once a company qualifies for the fast-track route, the Regional Director has the discretion to assess whether the merger is fully compliant. Even if a company is eligible for the fast-track process, if the Regional Director identifies any inconsistencies or objections under Section 233(5), they can refer the matter to the NCLT for further scrutiny. This allows companies to confirm their eligibility for the fast-track route, and should there be any issues, they still have the opportunity to opt for the NCLT route.
In essence, companies can choose the most suitable route for their specific case: either proceed with the fast-track merger route under Rule 25A(5), if there are no objections, or opt for the traditional NCLT process if they prefer or if issues arise. This dual flexibility allows companies to explore both avenues, depending on the circumstances, ensuring a more adaptable approach to redomiciliation.
A More Competitive Corporate Domicile – Still a Work in Progress: The rising tide of reverse flips highlights India's growing competitiveness as a preferred startup domicile. Each successful redomiciliation, such as those by Dream11 and Razorpay, chips away at the historical advantages enjoyed by jurisdictions like Singapore and UAE. India now boasts a large consumer base, expanding domestic capital sources including mutual funds, family offices, and sovereign wealth funds attracted by hubs like GIFT City, and enhanced regulatory clarity for startups. This enables founders to start and scale within India without relying on foreign holding structures as proxies for investor confidence or exit opportunities.
If this momentum continues, early-stage "flipping" (moving Indian entities offshore) may diminish, possibly becoming obsolete as startups increasingly list domestically from inception. However, challenges remain: India's comparatively high corporate tax rates and an evolving GST framework create cost concerns, especially for digital businesses. The angel tax, while moderated, has recently been extended to rounds involving foreign investors, generating unease among venture capitalists. While there has been significant ease in the process by virtue of the deemed RBI approval and fast track process (through which the approval or application from the NCLT is not required) in certain cases, however, the process of compliance with both the Companies Act as well as the foreign exchange regulations which stipulate valuation methodologies, investment conditions and restrictions, reporting compliance requirements and approval routes, still form a vast web that requires careful navigation and that have the possibility of prolonging the process.
India vs. Singapore vs. UAE: Inbound Flip Perspectives
India's revamped approach to inbound merger is a big step toward competitiveness. It now offers a viable path to bring a company home in a legally robust way (with court sanction replaced by administrative approval) and aligns corporate law with the needs of startups. Whereas countries like Singapore and UAE offers unmatched simplicity and tax advantages, making it ideal for regional or global startups. But India's reforms are slowly eroding the gap: by improving process speed and showing flexibility, India is signaling that it wants to be not just the market where startups find customers or investors, but the legal home of those startups. The balance between the jurisdictions will likely depend on a startup's priorities, if access to India's capital and consumers is paramount, the pendulum now swings toward India; if global minimal-tax operations are key, Singapore/UAE might still win out. Importantly, the fact that companies like Dream11, Razorpay, PhonePe, and Groww have chosen the Indian domicile, despite the tax costs, sends a strong message that India's overall value proposition for startups has markedly improved.
Conclusion: Legal Homecoming and the Road Ahead
The growing trend of unicorns with Indian roots returning to India through reverse merger is far more than mere corporate restructuring, it's significant that India's business and regulatory world is leveling up. Working together, they helped usher a big company back home smoothly. These deals are a template for future inward mergers, think thorough planning for approvals, sharp tax structuring to meet requirements under Section 2(1B), and aligning accounting for joint control.
Most importantly, for India's startup ecosystem, the message is clear: India is emerging as not just a market to target, but a jurisdiction of choice to incorporate and grow. The competitive gap with traditional havens is closing, India now promises regulatory agility (fast-track mergers), robust capital markets, and a supportive policy narrative for entrepreneurs. However, this fast-track approach shifts significant responsibility onto companies, placing a higher onus on meticulous internal compliance, proper valuation, and adherence to all regulatory conditions. Any misstep could lead to post-merger challenges or regulatory penalties, necessitating robust internal governance frameworks and meticulous documentation, effectively transferring some of the regulatory burden from external agencies to internal corporate functions. To be sure, challenges like tax burdens and compliance costs persist, but the trajectory is set in the right direction. We will see a cascade of "homecomings" in the near future. Each inbound flip will further strengthen India's case as a global startup hub, creating a virtuous cycle: as more companies localize, talent and capital pools deepen, which in turn attracts more companies to localize.
BIBLIOGRAPHY
- Statutes & Regulations
- Companies Act, 2013, No. 18 of 2013 (India).
- Income-tax Act, 1961, No. 43 of 1961 (India).
- Foreign Exchange Management Act, 1999, No. 42 of 1999 (India).
- Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2017, G.S.R. 368(E) (notified Apr. 13, 2017) (India).
- Foreign Exchange Management (Cross Border Merger) Regulations, 2018, Notification No. FEMA 389/2018-RB (Mar. 20, 2018) (India).
- Foreign Exchange Management (Overseas Investment) Rules, 2022 (India) (new ODI framework easing round-tripping restrictions).
- Foreign Exchange Management (Overseas Investment) Regulations, 2022 (India).
- Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2024, G.S.R. 682(E) (notified Sept. 15, 2024) (India).
- Indian Accounting Standard (Ind AS) 103 – Business Combinations, Ministry of Corporate Affairs, Notified under Companies (Indian Accounting Standards) Rules, 2015 (India).
- Government Reports
- Economic Survey 2024–25, ch. 5 (Ministry of Finance, Govt. of India, 2025) –"Medium Term Outlook: Deregulation Drives Growth").
- Economic Survey 2022–23, ch. 9 (Ministry of Finance, Govt. of India, 2023) – Box XI.5 "Flipping and Reverse Flipping: recent developments in Start-ups").
- Startup India Action Plan (Department of Industrial Policy & Promotion, Govt. of India, Jan. 16, 2016) – landmark policy document outlining incentives and regulatory benefits for DPIIT-recognized startups
- Report of the Expert Committee on "Onshoring the Indian Innovation to GIFT IFSC" (International Financial Services Centres Authority, Aug. 25, 2023)
- Union Budget 2021–22, Finance Bill – Memorandum (Govt. of India, 2021) – Rescinding Retrospective Tax: Introduced the Taxation Laws (Amendment) Act, 2021 to nullify the 2012 retrospective tax on indirect transfers.
- Startup India: India's Startup Ecosystem – Past, Present, Future (Economic Survey 2021–22, Chapter on startups) – highlights government initiatives (e.g. Fund of Funds, tax holiday, OPC reforms) that have begun to reduce the need for flipping and encourage founders to build and stay in India.
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