For-Profit Social Enterprise on

Social Stock Exchange

A Legal Explainer
January 2024
Authors and Acknowledgments
Authors

Meyyappan Nagappan
Brajendu Bhaskar
Megha Katheria
Eeshan Sonak
Harshita Adari
Ishika Garg
Prisha Tejani
Vibhore Batwara
Himanshu Raghuwanshi

About ANDE
The Aspen Network of Development Entrepreneurs (ANDE) is a global network of organizations that propel
entrepreneurship in developing economies. ANDE members provide critical financial, educational, and
business support services to small and growing businesses (SGBs) based on the conviction that SGBs create
jobs, stimulate long-term economic growth, and produce environmental and social benefits.
As the leading global voice of the SGB sector, ANDE believes that SGBs are a powerful, yet underleveraged
tool in addressing social and environmental challenges. Since 2009, ANDE has grown into a trusted network
of nearly 300 collaborative members that operate in nearly every developing economy. ANDE grows the body
of knowledge, mobilizes resources, undertakes ecosystem support projects, and connects the institutions
that support the small business entrepreneurs who build inclusive prosperity in the developing world.
ANDE is part of the Aspen Institute, a global non-profit organization committed to realizing a free, just, and
equitable society. With a U.S. team based in Washington, DC and eight chapters across Asia, Africa, and Latin
America, ANDE staff work hard to support members globally and locally, while building strong ecosystems for
entrepreneurial growth.

About Trilegal

Trilegal was founded in the year 2000 and has grown rapidly to become one of India’s leading law firms. We
are a top-tier full-service law firm with over 950 lawyers who are led by 117 partners. Trilegal is recognised as
having a market leading practice, with a clientele that includes leading international and Indian companies.

We have a unique and market leading impact finance practice that has advised on the most complex
structures in the space and provided innovative solutions. The team has created new award winning
structures, investment products, outcome/results based financing constructs that involve the blending of
private (profit seeking) and philanthropic capital. We have advised on the largest livelihoods focused impact
bond in India which was awarded the AVPN Constellations Awards 2023 for ‘Creating a More Equitable World
for Women and Girls in Asia’. We believe the impact space has immense potential for growth and is an
efficient mode to contribute to sustainable development. With this vision and the goal to achieve impact on
ground, we engage in advising and structuring various aspects of impact bonds, listed impact bonds,
2
outcomes funds, social stock exchange listings, and advising on blended finance structures, in addition to
advising on carbon credit taxation, green taxes, green credits and ESG incentives. We also contribute to the
academic space to aid in innovative thinking in the area. Some of our works include presenting a paper at the
University of Lund, being a member of the World Bank Water Resources Group Task Force on Innovative
Finance and finalist in the Thompson Reuters Trust Law Awards 2020.

We also have integral ESG and Diversity & Inclusion strategies and are devoted to giving back to the society.
We recently released our Sustainability Strategy internally that includes our commitment to integrate social
and environmental objectives in our firm and business and align with the UN Sustainable Development Goals
with a special focus on diversity, equal opportunity and leadership.

About TrustLaw
The Thomson Reuters Foundation works to advance media freedom, foster more inclusive economies, and
promote human rights. Through news, media development, free legal assistance and convening initiatives,
the Foundation combines its unique services to drive systemic change. TrustLaw, an initiative of the
Thomson Reuters Foundation, is the world’s largest pro bono legal network. Working with leading law firms
and corporate legal teams, we facilitate free legal support, ground-breaking legal research and resources for
non-profits and social enterprises in 175 countries. By spreading the practice of pro-bono worldwide,
TrustLaw wants to strengthen civil society and drive change. If you have ideas for resources we could develop
or legal research projects that would be of assistance after reading this guide, please contact us. If you are a
non-profit or social enterprise in need of legal support, you can find out more about the service here and join
TrustLaw for free.

Acknowledgements
ANDE and the Thomson Reuters Foundation would like to acknowledge and extend their gratitude to the legal
team of Trilegal, who contributed their time and expertise on a pro bono basis to make this report possible.
This report is offered for information purposes only. It is not legal advice. Readers are urged to seek advice
from qualified legal counsel in relation to their specific circumstances.
We intend the report’s contents to be correct and up to date at the time of publication, but we do not
guarantee their accuracy or completeness, particularly as circumstances may change after publication.
ANDE, Trilegal and the Thomson Reuters Foundation, accept no liability or responsibility for actions taken or
not taken or any losses arising from reliance on this report or any inaccuracies herein.
Trilegal generously provided pro bono research to ANDE. However, the contents of this report should not be
taken to reflect the views or opinions of Trilegal or the lawyers who contributed.
Similarly, the Thomson Reuters Foundation is proud to support our TrustLaw member ANDE with their work
on this report, including with publication and the pro bono connection that made the legal research possible.
However, in accordance with the Thomson Reuters Trust Principles of independence and freedom from bias,
we do not take a position on the contents of, or views expressed in, this report.

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4
Table of Contents
Chapter 1: Introduction ________________________________________________________________ 7

Chapter 2: What is a Social Stock Exchange? ______________________________________________ 8

1 Global Phenomenon of Social Stock Exchanges_________________________________________ 8
2 What Makes Securities and Exchange Board of India's Social Stock Exchange Stand Out? _____ 8
Chapter 3: Listing on Social Stock Exchange as a For-Profit Social Enterprise: A Stepwise Guide to
Fundraising ____________________________________________________________________ 10
1 How Are For-Profit Social Enterprises Different from Not-For-Profit Organisations in Raising
Funds on Social Stock Exchange? ___________________________________________________ 10
2 Eligibility Criteria for Social Stock Exchange Listing ____________________________________ 11
3 Who Cannot Be a Social Enterprise? _________________________________________________ 13
4 Disqualifying Events from Raising Funds on Social Stock Exchange _______________________ 14
5 Process of Fundraising on Social Stock Exchange for a For-Profit Social Enterprise _________ 15
A. What Are the Eligibility and Disclosure Requirements for Main Board, Small and
Medium Enterprises Platform and Innovators Growth Platform? ............................................... 17

B. Process For-Profit Social Enterprises Undergoing Initial Public Offer on Main Board
and Small and Medium Enterprises Platform or Innovators Growth Platform ............................ 20
6 Is It Mandatory for Social Enterprises to Register on the Social Stock Exchange?____________ 21
7 Who Can Invest in Securities Issued by Social Enterprises on SSE? _______________________ 21
8 Can Instruments Listed by For-Profit Social Enterprises be Traded in Secondary Market? ____ 21
9 What Are the Mandatory Disclosures Required by For-Profit Social Enterprises? ____________ 22
10 What Should a Social Stock Exchange Disclose in an Annual Impact Report? _______________ 24
11 Which Event Is a Social Enterprise Expected to Disclose to the Social Stock Exchange? ______ 24
A. What Is a Material Event? ......................................................................................................... 24

B. How Should a Social Enterprise Prepare to Disclose a Material Event? ................................. 25

C. How Should a Social Enterprise Disclose a Material Event? ................................................... 25

D. What Should One Do if a Material Event Is Reported in the Media?......................................... 26

CHAPTER 4: Finance Models Involving For-Profit Enterprises and Legal Considerations _____ 27
1 Income Tax Act___________________________________________________________________ 27
A. What Income Tax Considerations Arise for a For-profit Entity Raising Funds on Social
Stock Exchange? .......................................................................................................................... 27
2 Goods and Services Tax ___________________________________________________________ 30
A. Is Goods and Services Tax chargeable on securities listed on the Social Stock
Exchange?..................................................................................................................................... 30
3 Alternate Investment Fund _________________________________________________________ 30

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 A. How Are Social Impact Funds Different from Social Venture Funds? .................................... 30

B. What Are the Conditions for Social Impact Funds under AIF Category I requirements? ....... 29
4 Corporate Social Responsibility _____________________________________________________ 31
A. Can Corporate Social Responsibility Money Go into For-Profit Social Enterprises? .............. 31

B. Can Corporate Social Responsibility Money Be Used to Pay Interest to Risk Investor? ......... 31

CHAPTER 5: Policy Recommendations on Social Stock Exchange _________________________ 31

ANNEXURE-I Annual Impact Report __________________________________________________ 36

ANNEXURE-II Guidance Note for All Social Enterprises on Annual Impact Report ___________ 37

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Abbreviations
Abbreviation Definition
AIF Alternative Investment Fund
AIR Annual Impact Report
BSE Bombay Stock Exchange
CGST Central Goods and Services Tax
CSR Corporate Social Responsibility
GDP Gross Domestic Product
GST Goods and Services Tax
IPO Initial Public Offer
ITA The Income Tax Act
LTCG Long-Term Capital Gains
MCA The Ministry of Corporate Affairs
NSE National Stock Exchange
SDG Sustainable Development Goal
SEBI Securities and Exchange Board of India
SGB Small and Growing Business
SME Small and Medium-sized Enterprises
SSE Social Stock Exchange
STCG Short-Term Capital Gains
STT Securities and Transaction Tax
ZCZP Zero Coupons Zero Principal

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 Chapter 1: Introduction

India needs a significant capital injection to achieve the Sustainable Development Goal (SDG) targets by 2030
and deal with climate change. As India continues to lag in the critical SDG goals of alleviating poverty, ending
hunger, reducing inequality and ensuring decent jobs and economic growth, its development finance gap
stands at a staggering 13 percent of its gross domestic product (GDP). 1 Additionally, climate mitigation and
adaptation goals are increasing pressure on government spending.
Impact investing is a promising solution for the much-needed capital injection. Impact investing has made
significant strides in catalysing philanthropic and commercial capital to identify and support impact
businesses tackling critical social challenges. It has equipped India with the ability to tap into the much larger
pools of private capital available in global markets. This is necessary to rapidly scale and deepen the work of
successful social enterprises delivering services to and increasing the incomes of low-income populations.
The past few years have witnessed the development of several blended finance structures, particularly social
and development impact bonds. These instruments leverage philanthropic capital as outcome funding to
mobilise return-seeking capital to underwrite the risk of social service delivery. Thereby channelling it
towards development outcomes by pricing social targets in terms of financial returns. Initiatives like the
Social Stock Exchange (SSE) and amendments to corporate social responsibility regulations that channel
additional capital and enable results-based financing have the potential to increase and broaden the pooled
funds available to social enterprises and help them scale.
In December 2022, the Securities and Exchange Board of India (SEBI) approved the introduction of the SSE
as a special segment on the Bombay Stock Exchange (BSE). This was done based on the suggestions of a
working group and technical group that created a framework to provide social enterprises with an
additional avenue to raise funds. Given this context, ANDE India, under the aegis of its Small and Growing
Business (SGB) Finance Learning Lab, sought to produce this explainer. ANDE India collaborated with
TrustLaw, the legal pro bono service of the Thomson Reuters Foundation, to facilitate the pro bono
connection with Trilegal to develop this Social Stock Exchange Explainer with the objective of providing
focused guidance on how impact investors, local and foreign, can leverage the SSE to make investments in
social enterprises in India. Consequently, while the SSE framework addresses both for-profit and non-profit
enterprises, this explainer’s scope is limited to for-profit enterprises.

In November 2020, ANDE India brought out a Social Success Note Playbook as part of its SGB Finance
Learning Lab, and this explainer is the next step in continuing to meet one of the Learning Lab’s goals of
increasing knowledge around elements of blended finance that can help social enterprises scale.

1 A. Sheth, J. Batabyal, N. Nundy, A. Misra, and P. Pal. “India Philanthropy Report 2023”. Dasra | Bain & Company, Inc. 2023.
8
 Chapter 2: What is a Social Stock Exchange?

The rising gap between private capital and the social sector has prompted the need for innovative finance
solutions. A social stock exchange is one such opportunity for social sector organisations that eases the
process of fundraising. It offers to bridge the gap between funders and social sector organisations through
a platform that operates similarly to a stock exchange. Regulated by SEBI, India’s Social Stock Exchange will
allow social enterprises to raise capital by issuing securities while disclosing pertinent information to social
impact investors. Following SEBI approval, SSE segments have been established on both the National Stock
Exchange2 (NSE) and the BSE.3

1. The Global Phenomenon of Social Stock Exchanges

The world's first SSE was launched by Brazil in 2003. Since then, several countries such as South Africa,
Portugal, Canada, the United Kingdom and Singapore have also established social stock exchanges.
However, SSEs have seen limited operational longevity.
Four out of the seven SSEs launched around the world had to close operations. Currently, only Jamaica,
Singapore and Canada have operational SSEs.
There are many reasons behind their short life spans. Most of the SSEs were launched as private entities.
Some SSEs performed the role of mediators between donors and social enterprises. Some were dependent
on donations for the upkeep and daily operation of the SSE. The lack of a sustainable business model and
unreliability of fund flows adversely affected their long-term performance, thus limiting investor interest.

2. What Makes the Securities and Exchange Board of India's Social Stock Exchange Stand Out?
India's SSE will be a part of existing stock exchanges. SEBI's regulation of the SSE differentiates India’s
approach from other countries. For instance, Brazil, Singapore and the United Kingdom's SSE platforms were
managed as private sector entities and Canada's SSE is registered as a non-profit.4 While Singapore's SSE is
operated by the Stock Exchange of Mauritius and regulated by Mauritius's Financial Service Commission, 5
Jamaica's SSE is a corporate social responsibility initiative of the Jamaica Stock Exchange. 6 India's move to
house its SSEs as separate segments of established stock exchanges is expected to give SSEs access to
supportive infrastructure, thereby boosting their performance and viability.
As a platform, an SSE is a meeting point of mutual interests. But India's Social Stock Exchange's role goes
beyond mere matchmaking between funders and social enterprises. SEBI's Working Group’s 7 and Technical
Group's8 plans set out extensive disclosure requirements before and after a listing of securities.
The goal is to increase transparency and smoothen communication between funders and recipients. Detailed
disclosure requirements help investors receive critical insights on the social enterprises delivering impact,

2 V. Sreedhar. “NSE Gets Sebi Nod to Set Up Social Stock Exchange”. The Economic Times. 2022 (December 23).
3 Business Today. "Sebi Grants Final Nod for Social Stock Exchange as Separate Segment on BSE: Who can list on it?" Business Today. 2020.
4 “SVX”. Accessed on October 9, 2023.
5 IIX Global. "IIX Social Sustainability Bonds: Changing Finance, Financing Change.” The Rockefeller Foundation & IIX Global. 2017.
6 "Corporate Social Responsibility." Jamaica Stock Exchange. Accessed on October 9, 2023.
7 "Working Group Report on Social Stock Exchange." Securities and Exchange Board of India. 2020.
8 "Technical Group on Social Stock Exchange." Securities and Exchange Board of India. Accessed on October 9, 2023.
9
thus providing investors with clarity on an entity's vision, goals and strategies. At the same time, the SSE
offers social enterprises greater visibility for their projects and eases access to a large pool of impact capital.
The Indian model of SSE’s success will lie in the strength of the three pillars of transparency, fund
mobilisation and fund utilisation.

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 Chapter 3
Listing on the Social Stock Exchange as a For-Profit Social Enterprise: A
Stepwise Guide to Fundraising

The creation of a regulatory space for an SSE in India opens a new avenue of fundraising for the nation's
developmental sector. Social sector organisations often struggle to find the right donors and investors. For-
profit enterprises are balancing expectations of business viability and deliverable impact while looking for
the right investor. India's policymakers and regulators seek to ease these challenges. The SSE is expected to
promote private capital flow towards development impact projects with a sustainable revenue stream.
The financial regulator has amended two key regulations to create a robust framework for the operation of
the Social Stock Exchange in India. These regulations are:
1. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018
(ICDR Regulations),9
2. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,
2015 (LODR Regulations).10
Additionally, SEBI's circular released on 19 September 2022 prescribes disclosure parameters, including
impact reporting, for social enterprises to safeguard accountability and transparency. The regulations also
empower the stock exchanges to articulate any additional requirements concerning registration.
This explainer will help you navigate the process and requirements of listing yourself as a for-profit social
enterprise on the SSE. It will also provide a comprehensive understanding of the disclosure requirements
expected of by the regulator once you register or list on the SSE.

1. How Are For-Profit Social Enterprises Different from Not-For-Profit Organisations in Raising Funds on
the Social Stock Exchange?
There are two kinds of social enterprises (i.e., for-profit organisations and not-for-profit organisations).
While both can be listed on the SSE, the law recognizes the two differently and prescribes separate
procedures. They are primarily distinguished on the basis of their manner of legal incorporation. The
flowchart below explains this legal difference succinctly.

9 As per the third amendment by the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,
2022 w.e.f. 25.7.2022.
10 As per the third amendment by the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations,
2022 w.e.f. 25.7.2022.
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 Not-for-profit organisation
- Charitable society under the Societies Registration Act
- Charitable trust under the Indian Trusts Act 1882 or public trust statute of the state
- Company under Section 8 of the Company Act 2013.
Social enterprise
For-profit social enterprise
- Public company
- Private limited company
- Limited liability partnership

Figure 1: Types of Social Enterprises

2. Eligibility Criteria for Social Stock Exchange Listing

To start fundraising on the SSE, you must first be a social enterprise as per the criteria given by the SEBI
regulations. A quick look at the flowchart below will let you know whether you fulfil the necessary conditions
to be a social enterprise.

Are you a for-profit wondering

if you qualify as a social
enterprise?

Do you meet the requirements

of social intent?

Are you involved in any of the

following sectoral activities?

Promoting gender
Promoting health care Ensuring environmental
Eradicating hunger, Promoting education, equality,
including mental health, sustainability, addressing climate
poverty, malnutrition employability and empowerment of
sanitation and access to change, forest and wildlife
and inequality. livelihoods. women and LGBTQIA+
drinking water. conservation.
communities

Training in rural sports, Supporting platforms Slum area

Promoting
nationally recognized Supporting that strengthen non- development, Protection of
livelihoods for
sports, Paralympic incubators of social profit ecosystem in affordable housing and national heritage,
rural and urban
sports and Olympic enterprises. fundraising and capacity building sustainable art and culture.
poor.
sports. building. and resilient cities.

Facilitating access of land Bridging the digital divide Disaster management,

Promoting welfare of
Promotion of financial and property assets by and addressing including relief,
migrants and displaced
inclusion. disadvantaged misinformation and data rehabilitation and
persons.
communities. protection. reconstruction activities.

12
 Yes, I am involved in one of the Not a social
eligible activities No
enterprise

At least 67% of the immediately Members of the target population, to whom At least 67% of the immediately
preceding 3-year average of the eligible activities have been provided, preceding 3-year average
revenues comes from providing constitute at least 67% of the customer expenditure has been incurred for
eligible activities to members of the base/beneficiaries base of the average of providing eligible activities to
target population. the immediately preceding 3 years. members of the target population.

No No No

Not a social Not a social enterprise Not a social

enterprise Yes enterprise

You are a social enterprise!

Figure 2: Eligibility Criteria of Social Enterprises for the Social Stock Exchange

3. Who Cannot Be a Social Enterprise?

Some organisations are excluded from the framework of a social enterprise. Thus, you may have fulfilled all
the conditions of Figure 2 but may still not be able to list on the SSE since you cannot be considered a social
enterprise. Check Figure 3 to know whether you fall within the ambit of barred organisations from SSEs.

Am I excluded from being a social enterprise?

Are you a corporate foundation/ political or religious organisation or

conduct such activities/ professional or trade association/ infrastructure
and housing company?

Yes, but I am an infrastructure and

Yes housing company involved in
affordable housing.

Not a social
enterprise

You are not excluded from being

No
a social enterprise!

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 Figure 3: Organisations Excluded from the Definition of Social Enterprise

4. Disqualifying Events from Raising Funds on the Social Stock Exchange

Despite fulfilling eligibility requirements and being safe from the exclusion criteria, you may be debarred from
raising funds on SSE in case any of the prescribed events occur. Please see the flowchart below to learn
which events risk your disqualification from the SSE.

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 Can you be disqualified from raising funds on the SSE?

Have any of your selling shareholders, promoters, promoter group or trustees been debarred from
accessing the market?

You are disqualified! Yes No

Are any of your promoters, directors or trustees also promoters or directors in another company or
social enterprise that has been debarred by SEBI from accessing the securities market?

You are disqualified! Yes No

Is your enterprise or are any of your promoters, directors or trustees willful defaulters or fraudulent
borrowers?

You are disqualified! Yes No

Are any of your promoters, directors or trustees fugitive economic offenders?

You are disqualified! Yes No

Has your social enterprise or have any of your promoters, directors or trustees been debarred from
carrying out activities or raising funds by the Ministry of Home Affairs or any other authorities?

You are disqualified! Yes No

You are not disqualified from raising funds on the SSE!

Figure 4: Disqualification from Raising Funds on the SSE

5. Process of Fundraising on the Social Stock Exchange for a For-Profit Social Enterprise
For-profit social enterprises can issue securities on the Main Board, Small and Medium-sized Enterprises
(SMEs) Platform or Innovators Growth Platform. To do this, they must comply with the SEBI (Issue of Capital

15
and Disclosure Requirements) Regulations 2018 and SEBI (Listing Obligations and Disclosure Requirements)
Regulations 2015.
The flowchart below explains the steps of the listing process for a for-profit social enterprise.

How can a for-profit social enterprise raise funds on the SSE?

Your organisation should be incorporated as any of the following legal entities:

Private limited company
Limited liability partnership
One person company

List on Small and Medium-sized Enterprises

List on Main Board List on Innovators Growth Platform
(SME) Platform

Meet eligibility criteria to list on Main Meet eligibility criteria of SME Platform (see Meet eligibility criteria of Innovators
Board (see Figure 6) Figure 7) Growth Platform (see Figure 8)

Comply with SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018 and SEBI (Listing Obligations and Disclosure
Requirements) Regulations 2015

Follow listing process for Main Board and SME Platform Follow listing process for Innovators Growth Platform (See
(See Figure 9) Figure 10)

Listing process is complete

Issue equity or debt securities

Securities will carry the scrip ‘for-profit social enterprise’

Securities can be traded on secondary market

Figure 5: Listing on the Social Stock Exchange for For-Profit Social Enterprises

16
 A. What Are the Eligibility and Disclosure Requirements for the Main Board, Small and Medium
Enterprises Platform and Innovators Growth Platform?
As indicated in the above figure, each platform has its respective conditions and obligations for security
issuers. Given below is a bird's eye view of the eligibility and listing criteria on the Main Board, SME Platform
and Innovators Growth Platform.

17
 Outline of listing equity instruments on the Main Board

• The paid-up equity capital of the applicant must not be less than 10 crores and the capitalisation
of its equity should not be less than 25 crores.
• Net tangible assets of at least 3 crores, calculated on a consolidated basis, in each of the
preceeding three full years and not more than 50% are held in monetary assets.
Financials

• The applicant must have adhered to the conditions precedent to listing generally as under:
• 1. Securities Contracts (Regulations) Act of 1956.
• 2. Companies Act of 2013.
Conditions
• 3. SEBI Act of 1992.
Precedent to
Listing

• The applicant seeking listing or the promoters/promoting company must have a track record of
at least three years.
Track Record

• The applicant must provide to the Stock Exchange all details of pending investor grievances
against itself/its listed subsidiaries along with information relating to the mechanisms evolved
Redressal for redressing these.
Mechanism of
Investor
Grievance

• The applicant must not have had any rejections by the Exchange in the last six months.
Rejection
Cooling off
period

• If the issuer, any of its promoters, promoter group, directors or selling shareholders are debarred from
accessing the capital market by the Board
• If any of the promoters or directors of the issuer is a promoter or director of any other company that is
debarred from accessing the capital market by the Board.
Non-eligible • If the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower.
issuers • If any of its promoters or directors is a fugitive economic offender.

Figure 6: Eligibility for Listing Equity Instruments on the Main Board11 12

11Details of defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant, promoters/promoting
companies/group companies or subsidiary companies shall also be provided to the Stock Exchange. These will be considered while evaluating the application
for listing.
12 Figure 6 gives a brief outline of the eligibility requirements under the Issue of Capital and Disclosure Requirement Regulati ons that are mandatory, and

also the eligibility requirements laid down by the NSE. The exchanges have their own specific requirements that must be fulfilled as well.

18
 Outline of listing equity instruments on the SME Platform

• The issuer must be a company incorporated under the Companies Act 1956/2013 in India.
Incorporation

Post-Issue • The post-issue paid-up capital of the company (face value) shall not be more than Rs. 25 crore.
Paid-Up
Capital

• The applicant seeking listing or the promoters/promoting company must have a track record of at
least three years.
Track
Record

• Promoters must have a minimum of three years of experience in the same line of business and hold
at least 20% of the post-issue equity share capital individually or together.

Eligibility for • The company/entity should have operating profit from operations for at least two out of the three
Promoters financial years preceding the application, and its net worth should be positive.

• 1. No BIFR reference or Insolvency proceedings should have been made against the applicant and
promoting companies.
• 2. The company must not have received any winding-up petition by an NCLT/Court.
Other Listing
Requirements • 3. The company must not have faced any regulatory or disciplinary action by stock exchanges or
regulatory authorities in the past three years.

• 1. Any regulatory or disciplinary action taken by a stock exchange or regulatory authority against the
promoters/promoting company(ies), group companies, or companies they promote in the past year.
• 2. Payment defaults on debentures, bonds, fixed deposits, or to banks/financial institutions by the applicant or
related parties in the last three years.

Disclosures • 3. Information about the litigation record of the applicant, promoters/promoting company(ies), group
in the Offer companies or their promoted companies, including the nature and status of the litigation.
Document • 4. Status of criminal cases filed against the directors, including details of any ongoing investigations related to
the alleged commission of offenses and their potential impact on the company's business.

• The applicant company must not have had any rejections by the Exchange in the last six months.
Rejection
Cooling off
Period

Figure 7 Eligibility for Listing Equity Instruments on the SME Platform

19
 Outline of listing on the Innovators Growth Platform

• On the date of filing the draft offer document with SEBI, 25% of the pre-issue capital of the
company should have been held by one of the following for at least two years:
• 1. Qualified institutional buyer as mentioned in ICDR.
• 2. Family trust with net worth of more than Rs. 500 crore.
• 3. Accredited investors (AI) for the purpose of the Innovators Growth Platform.
Pre-Issue Capital
• 4. Category III Foreign Portfolio Investor or an entity meeting the listed criteria.

• The issuers on IGP must adhere to conditions precedent to listing emerging from:
• 1. Securities Contracts (Regulations) Act 1956.
• 2. Companies Act 2013.
• 3. Securities and Exchange Board of India Act 1992.
Conditions • 4. Any rules and/or regulations framed under the foregoing statutes, as well as any circular,
Precedent to Listing clarifications and guidelines issued by the appropriate authority under the foregoing
statutes.

• 1. The company, its promoter, group company or director must not appear in the willful
defaulters' list of RBI.
• 2. No winding up petition against the company must be admitted by a competent court.
• 3. The company, group companies or subsidiaries must not have been referred to the Board
for Industrial and Financial Reconstruction within a period of five years prior to the date of
Other Listing application for listing.
Conditions
• 4. No regulatory action must have been taken against the company within a period of five
years prior to the date of application for listing

• 1. Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed

deposit holders, banks, FIs by the applicant, promoters/promoting company(ies), group
companies or companies promoted by the promoters/promoting company(ies) during the
past three years. An auditor's certificate shall also be provided by the issuer to the
exchange, in this regard.
• 2. The applicant, promoters/promoting company(ies), group companies or companies
promoted by the promoters/promoting company(ies) litigation record, the nature of the
litigation, and the status of the litigation.
Disclosures in the
Offer Document • 3. In respect of the track record of the directors, the status of criminal cases filed or the
nature of the investigation being undertaken with regard to the alleged commission of any
offense by any of its directors and its effect on the business of the company, where all or
any of the directors of the issuer have or has been charge-sheeted with serious crimes like
murder, rape, forgery, economic offenses, etc.

Figure 8: Eligibility Criteria for Listing Instruments (Debt and Equity) on the Innovators Growth Platform

20
 Outline of listing debt instruments on the Main Board and SME Platform

• The applicant must not be in default of payment of interest or repayment of the

principal amount relating to any debt instruments, issued to the public, for a
period of more than six months.
Default in
Payments

• The applicant must have obtained a credit rating from at least one credit rating
agency.
Credit Rating

• The applicant must have appointed at least one debenture trustee in

compliance with the Companies Act of 2013 and the SEBI (Debenture Trustees)
Debenture Regulations of 1993. It should have also created a debenture redemption reserve
Trustee and in accordance with the Companies Act of 2013 and the rules therein.
Redemption
Reserve

• An applicant who proposes to create a charge/security on its assets in respect of

secured debt instruments must ensure that:
• 1. The assets are sufficient to discharge the principal amount.
• 2. The assets are free from encumbrances.
• 3. Where a security in favour of a lender is already created on the assets, or the issue of
Charge/ debt instruments is to be secured by a security on leasehold land, the consent of such
lendor/lessor for a second charge must be submitted to the debenture trustee before
Security on
opening the issue.
Assets
• 4. For instruments secured by a second charge, the asset cover will be arrived at after
reducing the liabilities of a first charge.

• The applicant must redeem the convertible debt instruments in terms of the
offer document.
Redemption

Figure 9: Eligibility Criteria for Listing Debt Instruments on the Main Board and SME Platform 13

13 The eligibility requirements for listing debt instruments on the Main Board (as contained in Regulations 9 and 10 of the ICDR Regulations) are the same as
those for listing debt instruments on the SME (as contained in Regulations 231 and 232 of the ICDR R egulations).
21
 B. Process for For-Profit Social Enterprises Undergoing Initial Public Offer on the Main Board
and Small and Medium-Sized Enterprises Platform or Innovators Growth Platform
The listing process on stock exchange platforms is provided under SEBI regulations and is akin to the regular
process followed by all companies undergoing an initial public offer (IPO). However, the regulations have
eased the process of listing on the Innovators Growth Platform for startups.
The following figures provide a brief overview of the listing process stages that for-profit social enterprises
will undertake while conducting their IPO on the Main Board and SME Platform (See Figure 9) and on the
Innovators Growth Platform (See Figure 10).

Outline of the initial public offer process on Main Board and SME Platform

Figure 10: Stages of the initial public offer on the Main Board and SME Platform14

14 Through its circular dated August 9, 2023, SEBI reduced the duration of the period, between the issue closure to listing from six to three
working days. The T+3 timeline will be applicable on a voluntary basis for public issues opening after September 1, 2023 and mandatory
for issues opening on or after December 1, 2023. Additionally, in its board meeting dated September 30, 2022, SEBI introduced an
alternative method for IPOs where the offer document may be pre-filed by the issuing company. The document will be made available
to the public after SEBI’s initial review. The existing system of non-confidential IPOs will continue; companies may choose among the two
methods.
22
 Outline of the initial public offer process on the nnovator Growth Platform

Documentation is prepared after Exchange verifies and processes

conducting due diligence and planning documents, and conducts site visit.
the IPO structure, share insurance, and Promoters called for an interview
financial requirements. with the Listing Advisory Committee.

1 2 3

S Consults and appoints Application filed by submitting the DRHP/Draft Exchange issues in-
the Merchant Banker Prospectus in line with the requirements of the principle approval on
Exchange as well as SEBI and fee specified in 5
recommendation of
Schedule III of ICDR Regulations. the Committee

8 7 6
RHP/Prospectus filed
Company submits documents The Initial Public Offer Once approval is received from ROC, with ROC indicating
as per the checklist to the opens and closes as Exchange is intimated regarding the dates of issue
Exchange to finalize the basis per schedule opening dates of the issue along with
of allotment the required documents

10

Exchange finalizes the basis of S

allotment and issues the Notice
regarding Listing and Trading

Figure 11: Stages of the initial public offer on the Innovators Growth Platform

6. Is It Mandatory for Social Enterprises to Register on the Social Stock Exchange?

Between for-profit enterprises and non-profit organisations, registration is mandatory for non-profit
organisations only.15 For-profit enterprises need not register on the SSE to raise funds through it.
However, they must comply with all applicable SEBI regulations as needed for their fund-raising
model.

7. Who Can Invest in Securities Issued by Social Enterprises on SSE?

Only institutional investors and non-institutional investors can invest in securities issued on the
Social Stock Exchange.16 Securities listed by for-profit social enterprises are listed on other stock
exchange segments as well. Hence, they can receive investment from retail investors. 17

8. Can Instruments Listed by For-Profit Social Enterprises be Traded on the Secondary Market?
Instruments issued by for-profit social enterprises are available for trading on the secondary market.

15 Regulation 292F (1). “Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations”. 2018 [Last
amended on January 14, 2022]; "Frequently Asked Questions (FAQs) on Social Stock Exchange." National Stock Exchange.
16 Regulation 292C. “Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations.” 2018 [Last amended
on January 14, 2022].
17 "Frequently Asked Questions (FAQs) on Social Stock Exchange." National Stock Exchange.
23
9. What Are the Mandatory Disclosures Required by For-Profit Social Enterprises?
All social enterprises are required to provide an annual impact report and disclose any material events as and
when necessary.

Annual
Material
Impact
Events
Report
Within 7 days of
Within 90 days from
occurence of event.
end of financial year.
(See Figure 13)

Figure 12: Mandatory Disclosures by Social Enterprises

10. What Should a Social Enterprise Disclose in an Annual Impact Report?

All social enterprises must disclose their annual impact report (AIR) in line with Regulation 91E of the LODR
Regulations.
The AIR must capture the qualitative and quantitative aspects of the social impact generated by the entity
and project (if applicable) for which funds have been raised on the SSE.
The following details must be captured by the AIR:
a. Strategic intent and planning
b. Approach
c. Impact score card
(Refer to Annexure I for the format and Annexure II for guidance)

11. Which Events Are a Social Enterprise Expected to Disclose to the Social Stock Exchange?
A social enterprise should disclose information about any material event. It is also expected to provide
specific and adequate replies to any query asked by the SSE as soon as reasonably possible.
Moreover, everything disclosed to the SSE should also be disclosed on the social enterprise's website.

A. What Is a Material Event?

Put simply, a material event is any event that impacts a social enterprise's ability to achieve the outputs or
outcomes declared to investors. Such an event should be disclosed within a reasonable period but no later
than seven days after the event's occurrence.

24
 B. How Should a Social Enterprise Prepare to Disclose a Material Event?
The regulations expect the board and management to establish a system to determine materiality. This
includes formulating a policy on determining material events and appointing key personnel to oversee
disclosures.
The figure below explains the regulatory expectations for the disclosure of material events.

How can social enterprises prepare to disclose material events?

Formulate policy on determining materiality of events.

Ensure board or management approval of policy on determining materiality of events.

Board authorization of one or more key managerial personnel to determine materiality of an event
and ensure disclosure to SSE.

Provide contact details of key managerial personnel.

Figure 13: Preparation for the Disclosure of a Material Event by a Social Enterprise

C. How Should a Social Enterprise Disclose a Material Event?

The regulations provide the process and requisite details that should be followed by a social enterprise while
disclosing material events. The infographic below gives an overview of the stages of disclosing and the
details required.

25
 Requirements of Disclosing Material Events

Disclose details •Details of

What to event What to Provide regular
of material
Identify disclose do while updates and
event as soon •Impact of
explanations
material as reasonably about a material event material while the event
event possible but not material •Plans to event remains
later than seven event? address the ends? material.
days impact

Figure 14: The Process for Disclosing Material Events

D. What Should One Do if a Material Event Is Reported in the Media?

The social enterprise can confirm or deny any reported event on its own initiative to the SSE or stock
exchanges.

26
 CHAPTER 4: Finance Models Involving For-Profit Enterprises and Legal
Considerations

Once securities have been issued, for-profit social enterprises will have to address legal requirements arising
from other Indian laws and regulations applicable to their securities and related transactions. This chapter
presents a comprehensive understanding of laws and regulations that may have an impact on transactions
from the securities issued on the Social Stock Exchange and related platforms.

1. Income Tax Act

A. What Income Tax Considerations Arise for a For-profit Entity Raising Funds on the Social Stock
Exchange?
1. Capital Gains Tax on Equity Instruments
As per Section 112A of the Income Tax Act (ITA), long-term capital gains (LTCG) arising from a listed equity
share will be taxed at 10% without the indexation benefit. Securities Transaction Tax (STT) is chargeable only
to such transactions undertaken through a recognized stock exchange, and the Section is applicable only
when STT is paid.18 This implies that the off-market trade of listed equity shares (e.g., LTCG) does not fall
under the ambit of Section 112A, and the applicable tax rate for such transactions is 20% with indexation
benefits or 10% without indexation benefits, whichever is lower.
Short-term capital gains (STCG), where a transaction is chargeable with STT, fall under Section 111A and are
taxed at 15%. Not chargeable to STT, those transactions will be added to the total income and are taxable at
applicable slab rates.
The figure below provides a succinct explanation of the requirements applicable to equity issues.

18 Ministry of Finance. 2017. “Notification No. 43/201 [F. No. 370142/09/2017-TPL]/SO 1789”. Government of India Press.
27
 Capital Gains Tax on Equity Instruments of For-Profit Social Enterprise on SSE

S. No. Description On-market trade Off-market trade

1 Holding period i. 'Short-term capital gains' if held for 12 months or less before
transfer; and
ii. 'Long-term capital gains' if held for more than 12 months.

2 Long-term capital Section 112A20 provides that i. 20% after giving effect to
gains tax19 capital gains arising from the indexation benefit if
transfer of a long-term capital available (exclusive of
asset, being an equity share in applicable surcharge and
a company or a unit of an cess); or
equity-oriented fund, shall be
ii. 10% before giving effect to
taxed at the rate of 10% of such
the indexation benefit
capital gains exceeding Rs.
(exclusive of applicable
1,00,000.
surcharge and
Provided that STT is paid on cess), whichever is lower.
the transfer of such shares and
acquisitions (in the case of an
equity share in a company).
Note that the indexation
benefit is not provided.

3 Short-term capital Section 111A22 provides that Section 111A excludes off-
gains tax21 capital gains arising from the market trade (i.e., STCG)
transfer of a short-term arising on the sale of equity
capital asset being an equity shares other than a
share in a company or a unit of recognized stock exchange. In
an equity-oriented fund shall such cases, income is taxable
be taxed at the rate of 15% at applicable slab rates.
(exclusive of applicable
surcharge and cess as
applicable).
Provided that STT is paid on
the transfer of such shares and
acquisition

Figure 15: Income Tax on Capital Gains of Equity Instruments Issued by For-Profit Social Enterprises

19 Income Tax Department. 2023. " Tax on Long-Term Capital Gains." Income Tax Department.
20 Section 112A, Income Tax Act. 1961.
21 "Tax on Long-Term Capital Gains." Income Tax Department. 2023.
22 Section 111A, Income Tax Act, 1961.
28
 2. Capital Gains Tax on Debt Instruments
While Section 112A of ITA deals with taxation on LTCG on equity shares in a company, a unit of an equity-
oriented fund or a unit of a business trust, Section 112 is the provision for taxation on LTCG other than those
covered under Section 112A. Long-term capital assets under Section 112 cover "listed securities".
The explanation to this section reads as,
For the purposes of this sub-section, —
(a) the expression "securities" shall have the meaning assigned to it in clause (h) of Section 2 of the
Securities Contracts (Regulation) Act, 1956 (32 of 1956);
(aa) "listed securities" means the securities which are listed on any recognized stock exchange in
India;
Section 2(h)(i) of the Securities Contracts (Regulation) Act, 1956 includes "shares, scrips, stocks,
bonds, debentures, debenture stock or other marketable securities of a like nature in or of any
incorporated company or other body corporate".
(Emphasis added.)
Upon analysing Section 112 and the explanation provided, it can be inferred that debt instruments fall under
this section. Hence, the applicable tax rate for LTCG under Section 112 is 10% without indexation benefit or
20% with indexation benefit, whichever is lower. For STCG, Section 111A is usually referred to, but as Section
111A only covers STCG arising on the sale of equity shares, anything other than these is taxed at a normal slab
rate.23 Hence, STCG on debt instruments on and off-market fall are taxable at applicable tax slab rates.
Given below is a concise explanation of the legal framework relevant to debt issues.

Capital Gains Tax on Debt Instruments of For-Profit Social Enterprise on SSE

S. No. Description On-market trade Off-market trade

1 Long-term capital i. 20% after giving effect to --

gains tax indexation benefit if available
(exclusive of applicable
surcharge and cess); or
ii. 10% before giving effect to
the indexation benefit
(exclusive of applicable
surcharge and
cess), whichever is lower.

2 Short-term capital Taxable at applicable slab rates. Taxable at applicable slab

gains tax24 rates.

Figure 16: Income Tax on Capital Gains of Debt Instruments Issued by For-Profit Social Enterprises

23 "Tax on Long-Term Capital Gains." Income Tax Department. 2023.

24 "Tax on Long-Term Capital Gains." Income Tax Department. 2023.
29
2. Goods and Services Tax

A. Is Goods and Services Tax chargeable on securities listed on the Social Stock Exchange?
Securities, including shares, will not be considered either goods or services under the Central Goods and
Services Tax Act (CGST Act) as per a clarification issued by the Central Board of Indirect Taxes and Customs
on 17th July 2023. Thus, Goods and Services Tax (GST) will not be applicable on the sale or purchase of
securities listed on the SSE.

3. Alternate Investment Fund

A. How Are Social Impact Funds Different from Social Venture Funds?
In July 2022, SEBI amended the regulations on Alternative Investment Funds (AIFs) to rechristen Social
Venture Funds as Social Impact Funds. Social Impact Funds fall under Alternative Investment Funds Category
I. Previously, Social Venture Funds had to adhere to the same conditions as the rest of Category I funds. They
could also only invest in social ventures, which limited their investment basket to non-profits and
microfinance institutions. Following the amendments, specific conditions have been crafted for Social
Impact Funds along with introducing allowing investment in social enterprises, which expands their
investment ambit.

Social Venture Fund Social Impact Fund

Minimum investment of Rs 1 crore Minimum investment of Rs 1 crore

Minimum grant accepted by a person Invests primarily in social ventures or

will be Rs 25 lakhs securities of social enterprises

Invests primarily in social ventures

and whose investors receive Minimum corpus of Rs 5 crore
restricted or muted returns

Minimum grant accepted by a person

Minimum corpus of Rs 20 crore
will be Rs 10 lakhs

Figure 17: Difference between Social Venture Funds and Social Impact Funds under SEBI Regulations
30
 B. What Are the Conditions for Social Impact Funds under AIF Category I requirements?

Conditions for Social Impact Funds under AIF Category I

Can invest in investee companies, venture capital undertakings, special purpose

vehicles, limited liability partnerships and units of other Category I AIF of the same
sub-category or units of Category II AIF.

Investors, other than accredited investors, must grant at least Rs 10 lakhs

minimum

At least 75% will be invested in unlisted securities, partnership interest of social

ventures, units of social ventures, or securities of social enterprises

What can SIFs (AIF-I) do? What SIFs (AIF-I) not do?
• Can give grants to securities of social enterprises • Cannot borrow funds or engage in leverage.
while making required disclosures in placement • Exception: for meeting temporary funding
memorandum. requirements and for not more than 30 days. This
• Can engage in hedging and credit default swaps as can happen only four times and amount to
per regulations. maximum 10% of investable funds.

Figure 18: Investment Conditions for Social Impact Funds under AIF-I norms.

4. Corporate Social Responsibility

A. Can Corporate Social Responsibility Money Go into For-Profit Social Enterprises?

No direct provision allows or disallows corporate social responsibility (CSR) spending to go to for-
profit social enterprises. The law specifically mentions, in Section 8, that companies, trusts or
societies are recipients of CSR grant money, thus giving it a narrow ambit.

B. Can Corporate Social Responsibility Money Be Used to Pay Interest to Risk Investors?
The legal position on whether CSR money can be used to pay risk investors is unclear. Moreover, there
is a risk of negative market perception due to which such payments may not be allowed. The Ministry
of Corporate Affairs (MCA) circular clarifies the purposes for which CSR funds can be utilized.25 It
excluded activities undertaken in the course of business activities or fulfilled under any statutory

25 "Frequently Asked Questions (FAQs) on Corporate Social Responsibility" (General Circular No. 14/2021). Government of India, Ministry of
Corporate Affairs. 2021.
31
 law.26 There is a likelihood that using CSR money as payment to a risk investor can be viewed as a
business activity.
Moreover, CSR expenditure cannot be incurred on activities beyond Schedule VII. The activities
undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act
2013. The items enlisted in Schedule VII of the Act are broad-based and are intended to cover a wide
range of activities. The entries in the said Schedule VII must be interpreted liberally to capture the
essence of the subjects enumerated in the said Schedule.

26 "Frequently Asked Questions (FAQs) on Corporate Social Responsibility" (General Circular No. 14/2021). Government of India, Ministry of
Corporate Affairs. 2021.
32
 CHAPTER 5: Policy Recommendations on the Social Stock Exchange

No. Challenge Recommendation

1 Framework: SSE Regulations and SEBI Regulations

Non-profit organisations can raise Through an amendment to the SSE Regulations and SEBI
funds on the SSE by issuing Zero Regulations, explicitly define the following phrases:
Coupons Zero Principals (ZCZPs). For-
▪ Outcome funder: An institutional or government entity
profit social enterprises can do so by
that releases funding to an agent, non-profit or
issuing equity shares/debt
otherwise, under a contract upon the latter's
instruments. Presently available
achievement of pre-defined social outcomes.
instruments like ZCZP are unsuitable
for outcome funding models, which ▪ Risk investor: An actor in an outcome funding model
are the most prevalent in this space. who provides upfront capital to an agent, non-profit or
otherwise, to achieve agreed social outcomes for the
ZCZPs function like grants and cannot
term of the contract.
facilitate the flow of returns from the
social enterprise to the risk investor. ▪ Impact bond: An instrument that facilitates both non-
This renders the entire outcome profit and for-profit social enterprises to raise funds
funding model untenable. through one of the following models:
− Debt-based model: The bond shall allow the risk
investor to provide debt financing to a registered
entity, against which the investor shall be able to
receive returns. A government entity shall act as an
outcome funder in this tripartite model.
− Service-fee model: Through this bond structure, the
risk investor shall pay a service fee to the registered
entity for certain predefined outcomes. Once the
outcomes are achieved, the investor will be eligible
for a service fee from the outcome funder.
Explicitly defining these terms and creating an impact
bond as a single listable instrument will aid the ecosystem
that the SSE set out to enable. Models like the service-fee-
based one will also reduce financial risks for the social
enterprises, allowing them to better achieve outcomes.

2 Corporate Social Responsibility

The current position of the law as to ▪ The MCA has recently outlined the need for CSR to be
whether CSR funds can be utilised in used to enhance corporate sustainability through a
outcome funding models is unclear. process that promotes transparency and
Due to this, the market perception has accountability. Infusing funds into non-profit or for-
27

27 "Monthly Newsletter." Ministry of Corporate Affairs. 2023. Vol. 66.

33
No. Challenge Recommendation
generally disallowed the use of these profit social enterprises listed on the SSE is the ideal
funds to say, for example, pay way to achieve this goal. The disclosure requirements
interests/ returns to risk investors on that must be followed by any enterprise listed on the
their capital. SSE enhance transparency and iron out
communication between funders and social
enterprises.
▪ Companies should be encouraged to prioritise
investing in enterprises listed on the SSE when using
CSR funds. This can be done through either a
clarification by the MCA or an amendment to Schedule
VII of the Companies Act of 2013, which lists the
permissible goals for which CSR funds may be
deployed.

3 Goods and Services Tax

In outcome funding models, there is a Previous circulars by the department have made it clear
risk that the grants paid by outcome that donations that are philanthropic in nature and made
funders upon the achievement of without a quid pro quo element would not qualify as a
certain milestones may be 'supply of service'. Grants made by outcome funders are
characterised as a service, thus also meant to enhance social outcomes for public
attracting GST. Such characterisation purposes. The Department of Revenue can release a
also brings with it heavy reporting circular clarifying that GST will not be applicable on grants
requirements, which is a huge made by these funders for the fulfilment of predefined
compliance burden for the actors in social objectives.
this model. This can disincentivise
organisations from opting for outcome
funding contracts.

4 Foreign Contribution Regulation Act

Most outcome funding models are Instead of following a prior permission route, foreign
heavily dependent on grants from capital under outcome funding contracts channelled
foreign investors. The process for through the SSE should be allowed under the automatic
obtaining permission to receive such approval route. This is especially important considering
funds is tedious and, as a matter of the transparency that funds routed through the SSE enjoy,
practice, open only to non-profit social given the regulatory oversight involved. Keeping in mind
enterprises. For-profit entities are the concerns around the misuse of funds, such automatic
thus unable to participate in outcome approval should at least be provided in cases where a
funding models with foreign government or its agency acts as an outcome funder.
contributions despite operating as Where a branch of the government is involved, possibly
social enterprises. the risk of misuse is significantly lesser.

34
No. Challenge Recommendation

5 Income Tax Act

As per the Union Budget 2023, if a It must be ensured that genuine sub-granting transactions
charitable institution donates a grant are not unduly affected by the newly imposed restrictions.
received by another registered trust/ The Central Board of Direct Taxes can issue
institution, only 85% of such donations circular/binding instructions excluding the applicability of
shall be exempt from tax. These such restrictions from legitimate sub-granting
changes were aimed at preventing any arrangements facilitated fully or in part through the SSE.
misuse of tax exemption provisions
through chain donations. Such
restrictions risk discouraging genuine
sub-granting transactions, leading to
increased obligations for all charities
due to misuse by a few.

35
 ANNEXURE-I

Annual Impact Report

The Annual Impact Report should at a minimum, cover the aspects described below.
a. Strategic Intent and Planning
i. What is the social or environmental challenge the organisation and/or the instrument listed is
addressing? Has this changed in the last year?
ii. How is the organisation attending to the challenge or planning to attend to the challenge? Has this
changed in the last year?
iii. Who is being impacted (target segment)? Has this changed in the last year?
iv. What will be the outcomes of the activities, intervention, programmes or project? Disclosure
should include positive and potential unintended negative outcomes.
b. Approach
i. What is the baseline status/situation and analysis/context description at the start of the
activity/intervention/programmes or project and at the end of the last reporting period?
ii. What has been the past performance trend (if relevant)?
iii. What is the solution implementation plan and what measures have been taken for the
sustainability of the activity/intervention/program or project outcomes? Has there been any
material change in your implementation model in the last year?
iv. Please briefly outline the alignment of solutions to the Sustainable Development Goals
(SDGs)/national priorities/state priorities/developmental priorities.
v. How have you taken into consideration stakeholder feedback in this reporting period?
vi. In the last year, what have you seen as the biggest risks to the achievement of the desired impact?
How are these being mitigated?
c. Impact Score Card
i. What are the matrices monitored, and what has been the trend?
ii. Briefly include narratives of impact on target segment(s) in the reporting period.
iii. Beneficiary/stakeholder validation through surveys and other feedback mechanisms.

36
 ANNEXURE-II

Guidance Note for All Social Enterprises on the Annual Impact Report

a. Strategic Intent and Planning

i. What is the social or environmental challenge the organisation or the instrument listed is
addressing? The problem statement is to be explained in detail. The challenge, its extent, causes
and consequences, and the part of the problem statement the organisation and the instrument
are trying to address shall be explained.
ii. How is the organisation planning to attend to the challenge or how is it attending to the challenge?
iii. The approach the organisation or the specific instrument will be using or is already using needs
to be explained. The organisation shall also explain what change is resulting for the targeted
beneficiaries and what proportion of the target group is experiencing the change.
iv. Who is being impacted (target segment)?
The target beneficiaries/stakeholders cover various kinds of target groups. Include the
organisation's internal definition of the "target segments" it seeks to serve, usually along one or
more of the three dimensions, namely:
▪ Income (driven by socio-demographic and/or behavioural characteristics);
▪ Geography (ecosystem or geographic characteristics driven by population density
(urban/rural), administrative boundaries, terrain, etc.); and
▪ Thematic issue (gender, caste, community that places the target segment at a disadvantage
that has economic and non-economic consequences).
Where the target segment is a specific geographic region in its entirety, state so. Thematic issues
could be one or more of the following: conservation of resources, generation via renewable
resources, reduction in waste, conservation (say of land, wildlife, historical monuments, etc.) and
reduction in toxic substances. Also, bring out possible deviations that might have occurred in the
reporting period.
v. What will be the outcomes of the solution/programme? Coverage should include positive and
potential unintended negative outcomes.
Describe the theory of change/logic model framework (defining input(s), output(s) and
outcome(s)) for the solution proposed. While identifying the targeted impact segment, both
positive and potential unintended negative impacts need to be identified.
b. Approach
i. What is the baseline status/situation and analysis/context description at the start of the activity,
intervention, programme or project?
The baseline measurement is done to establish the starting point in any activity, intervention,
programme or project. The measurements give the depth of the challenge and/or the spread of
the challenge. The organisation will establish the right kind of measurements, keeping the end or
37
 what the organisation or instrument wants to achieve since the baseline will be used to measure
what actually changed due to the intervention. In the absence of a baseline study, a detailed
situation analysis is to be mentioned.
ii. What has been the past performance trend?
For any ongoing activity, intervention, programme or project explain the key past performance
trends; for a proposed activity, intervention, programme or project, the narrative should explain
the experience of similar programmes in similar situations.
iii. What is the solution implementation plan and what measures have been taken for the
sustainability of programme outcomes?
A detailed implementation plan is to be mentioned, capturing all the essential activities. The
interventions can be either perennial support or time-bound support. In case of time-bound
support, the organisation shall explain the exit strategy and how it ensures that the outcomes
achieved will be sustained. In the case of perennial support, the organisation can also explain how
it will ensure the sustainability of the project/programme. Also, bring out possible deviations that
might have occurred in the reporting period.
iv. Please briefly outline the alignment of solutions to SDGs/national priorities/state priorities.
Explain the alignment of the activity, intervention, programme or project to respective SDGs and
national/state priorities and schemes.
v. How have you taken into consideration stakeholder feedback in this reporting period?
The organisation to mention how they have mapped and prioritised the key stakeholders for the
engagement. The reporting shall include the list of stakeholders engaged, their feedback and how
the organisation used the feedback.
vi. In the last year, what have you seen as the biggest risks to the achievement of the desired impact?
How are these being mitigated?
Mention the key potential risks pertaining to the organisation or the specific instrument that
could hamper/hinder the achievements of desired intended outcomes in the last year and the
steps or strategies taken by the organisation to mitigate the same.
c. Impact Scorecard
i. What are the matrices monitored, and what has been the trend?
The trend in performance shall be explained through the trend of the data across the output,
outcome and impact matrices that are established by the organisation. The matrices will capture
the reach of the activity, intervention, programme or project as well as the level of inclusiveness
of the impact being generated (direct, indirect, extended). This shall help evaluate the delta
change that has occurred in the lives of various target stakeholders (including the environment)
due to the solution. The matrices monitored shall target to cover the reach, depth and inclusion.
Reach - Outreach metrics for the target segment(s) served:
▪ The proportion of the target segment(s) who have been reached in the reporting period
▪ The proportion of the target segment(s) who accepted the organisation`s solution
38
 ▪ What part of the planned activity, intervention, programme or project has been accomplished
in the reporting period
▪ Cumulative reach (members of the target segment served since inception)
▪ Other suitable metrics in relation to the solution usually relate to people, institutions or
activities (e.g., monthly active users of MAUs for an app/tech platform). These can be
considered as needed, where the target segment is the specific geographic region.
Depth - The depth of impact on the median individual (of the target segment(s))
Surveys (1% of the customers/recipients or at least 200 respondents per organisation) asking
respondents, 'Has your quality of life changed', with response options being: very much improved,
slightly improved, no change, got slightly worse, got much worse.
Alternatively, social enterprises can compare themselves to different 'case studies' of high-,
medium- and low-depth organisations.
Inclusion - The social enterprise must consider for itself how its approach intends to improve
inclusion for its customers/recipients along one or more of the following themes.
▪ Theme 1: Net increase in income levels of customers/recipients among target segment(s) as
decided by the organisation. The organisation can self-select 'low', 'medium' or 'high'.
▪ Theme 2: Diversity and inclusion: The social enterprise exhibits how it prioritises the inclusion
of these disadvantaged groups or communities (either as owners, partners or customers) and
empowers them in their relationship with the social enterprise over time.
▪ Theme 3: Social equity: The social enterprise exhibits how its approach has resulted in the
disadvantaged group or community experiencing increased social equity. This can be through
a survey as above or through qualitative criteria such as details of its strategy, processes and
internal accountability/governance processes that have resulted in an internal culture that
values and works towards achieving social equity for the disadvantaged group or community.
ii. What are the highlights or achievements in the reporting period?
The organisation should mention key highlights, achievements, challenges and/or
disappointments during the reporting period.
iii. Beneficiary/stakeholder validation
It is of the utmost necessity to capture the perspectives of programme stakeholders to draw a
holistic picture of the impact/change that has been achieved by the programme. Stakeholder
voices also help in capturing information that will help validate the impact claims. This can
establish a check and avoid over-claiming. The validation process shall answer the following
questions:
▪ What would have happened in the absence of this activity, intervention, programme or
project?
▪ How much did the activity, intervention, programme or project contribute to the changes that
are evidenced?

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▪ How many unintended negative impacts happened due to the activity, intervention,
programme or project?

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For more information, please contact:

SangEun Kim
Research Manager
[email protected]

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