The Hindu Business Line : `Waive capital gains tax for VCFs exiting from unlisted cos'

EASING TAX NORM: Mr Nitin Desai (left), Chairman of the Committee on Technology Innovation and Venture Capital, along with other panel members presenting the committee's report to Mr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, in the Capital on Wednesday. — Kamal Narang

New Delhi , July 19

Venture Capital Funds (VCFs) exiting unlisted companies may get capital gains tax exemption, if the recommendation of a committee appointed by the Planning Commission is accepted by the Government.

"We see no logic in the VCFs getting a less favourable tax treatment on their exits from unlisted companies. When they exit an unlisted company, they are charged capital gains tax. However, if the exit is through listing there is no capital gains tax," Mr Nitin Desai, Chairman of the Committee on Technology Innovation and Venture Capital, told reporters here on Wednesday after presenting the report to the Planning Commission Deputy Chairman, Mr Montek Singh Ahluwalia.

Other recommendations

The Committee has also endorsed the Lahiri Committee recommendation that VCFs be permitted to invest in overseas companies. It has also suggested that the restriction on domestic venture funds to limit their investments in a single venture to 25 per cent be removed if the investment is from an accredited high networth angel investor.

The Committee has said that whenever a foreign company acquires a VCF-aided company, the VCFs should get tax exemption even if they receive foreign securities instead of cash for selling their domestic securities to the foreign company.

The Nitin Desai Committee also wants the Government to extend the applicability of the proposed limited liability partnership (LLP) structure to VCFs. "The proposed framework on LLP is not very clear as to whether VCFs would be covered or not. We want VCFs to be specifically covered," Mr Shrawan Nigam, Member Secretary of the committee, told Business Line.

On preference shares, it has reiterated the J.J. Irani committee proposal for perpetual preference shares and recommended that appropriate changes be made in the Companies Act.

Another recommendation is for providing a set-off against taxable income for individuals who invest in start-ups emanating from incubation facilities in research institutions and in domestic VCFs that are less than Rs 250 crore and whose charter clearly states that the VCF will be investing primarily in seed stage companies.

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