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IT Rules 2021: How will SaaS companies like Freshworks and Zoho be affected?

Indian Software-as-a-Service (SaaS) companies like Freshworks and Zoho could be unintended victims of the new Information Technology (IT) Rules, 2021. Notified in February, the IT Rules 2021 prescribe regulation for internet intermediaries, while creating a new definition meant for social media platforms. While SaaS products don't necessarily function like social media companies, the rules seem to make no distinction between them. Why it matters: India is a SaaS powerhouse with around 8,000 SaaS companies serving clients in India and abroad with about 75 percent of the demand coming from overseas markets. It currently has six SaaS unicorns: Zoho, Freshworks, Icertis, Druva, HighRadius, and Postman. Bain and Company recently published a report stating India's SaaS landscape is "on the cusp of a transformation" and is expected to bring in revenues close to $20 billion and capture close to 9% of the global SaaS market by 2022. Given these facts and figures, any unnecessary and onerous responsibilities placed on SaaS companies by the new IT Rules will adversely affect the growth of this sector. A bit of context: According to the IT Rules 2021, a social media intermediary is defined as "an intermediary which primarily or solely enables online interaction between two or more users and allows them to create, upload, share, disseminate, modify or access information using its services." SaaS companies typically host an application on their servers and make it available to customers (generally companies) over the internet. "The rules do not specify the ambit of the social media intermediaries, however, the functions…

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