Amendments to Social Stock Exchange Framework - A Summary of Recent Developments (Update 2)

The Securities and Exchange Board of India (SEBI) had notified the detailed framework on Social Stock Exchange (SSE) vide its circular SEBI/HO/CFD/PoD-1/P/CIR/2022/120 dated September 19, 2022. As on date 43 organizations have registered on the BSE SSE and 60 organizations have registered on the NSE SSE. 

In December 2023, the SEBI approved several significant changes with the intent to boost fundraising by Not-for-Profit Organizations (NPOs) on the Social Stock Exchange (Summarised in Pacta's Update 1 on the SSE):

1. Reduction in Minimum Issue Size: From Rs. 1 Crore to Rs. 50 lakhs for public issuance of Zero Coupon Zero Principal Instruments (ZCZP) by NPOs on SSE. 
2. Reduction in Minimum Application Size: From Rs. 2 lakhs to Rs. 10,000 for wider participation, including retail investors.
3. Nomenclature Change: Renaming “Social Auditor” to “Social Impact Assessor” for a positive outlook.
4. Disclosure of Past Social Impact: Allowing NPOs to disclose past social impact reports in fundraising documents.
5. Expansion of Eligibility: More entities, including those registered under Income Tax Act sections 10(23C) and 10(46), eligible for registration and fundraising on SSE.

In April 2024, there have been few more developments. These are detailed below: 

1.     Disallowing transfers of ZCZP instruments from original subscriber/holder [01 April 2024][2]

ZCZP instruments shall not be transferable from the original subscriber/holder till the expiry of the tenure of the instrument. The date of allotment of ZCZP can be taken as the date of donation for the donor who subscribes to the instrument. Additionally, that requisite details needed under Rule 18AB of the Income Tax Rules, 1962 by the not-for-profit institution to furnish the statement of donation such as name, PAN number, Aadhaar number, passport etc of the donor should be made be available to the not-for-profit institution through the application process.

2. ZCZP instrument to be considered as an eligible donation under 80G of the Income Tax Act, 1961 [10 April 2024][3]

In the letter dated 10th April 2024, the Central Board of Direct Taxes (CBDT) has clarified to SEBI that investment in ZCZP instruments (issued by NPOs on the SSE platform) would be treated as an eligible donation under section 80G of the Income Tax Act, 1961. This would be subject to fulfilment of all provisions under Section 80G. The CBDT also clarified that, subscribers of the ZCZP instrument shall not be eligible for any claim under the Act, other than deduction under section 80G.

3. Introduction of bidding in ZCZP Instrument under e-IPO Module for Social Stock Exchange (SSE) [30 April 2024][4] 

By notification dated 30 April, 2024, the National Stock Exchange has developed a facility for bidding of Zero Coupon Zero Principal (ZCZP) Instrument on its existing web-based e-IPO Platform for SSE. Self-certified syndicate banks (hereafter, SCSB) and Syndicate Members with (3-in-1 Account) registered on e-IPO platform, shall be eligible to participate in bidding of ZCZP instruments. The provisions of this circular shall be applicable for ZCZP instruments on or after May 07, 2024.

[2] SEBI office letter OW-12658/1, dated 01 April 2024, available through F.No.176/3/2023-ITA-I.

[3] F.No.176/3/2023-ITA-I, dated 10 April 2024 https://www.linkedin.com/feed/update/urn:li:activity:7192843948392943616

[4] NSE Circular No. 06/2024, dated 30 April 2024.https://nsearchives.nseindia.com/content/circulars/IPO61843.pdf