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Govt may cut capital gains tax on PE investments

| Updated on: Apr 23, 2012

To attract more foreign capital, the Finance Ministry may cut long-term capital gain tax from 20 per cent to 10 per cent on investments made by private equity funds into shares of unlisted companies.

Several PE investors have appealed to the Ministry to bring them at par with foreign institutional investors (FIIs) as far as tax treatment is concerned.

“For PEs investing in unlisted securities, currently they are charged higher rate of tax than FIIs. So they have requested to be brought on a par with FIIs. Let us see,” the Finance Secretary, Mr R. S. Gujral, said.

According to the provisions of the Finance Bill 2012, while FIIs pay a long-term capital gain tax of 10 per cent for investment in unlisted securities, private equity (PE) investors pay 20 per cent.

For listed securities, however, there is no tax on long-term capital gains. Experts say if the tax structure of the PEs is relaxed, it would help them exit their investment in India without worrying much on the tax payout.

PE investors usually invest largely in start-ups, and for the longer term, usually a 5-8 year horizon, and they prefer to exit their holding at the time of listing of the company.

However, volatile stock market conditions are delaying the listing plans of several companies and PEs are now going for private share sale to exit their holdings.

Published on April 23, 2012

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