House Panel For Abolition Of LTCG Tax On Investments In Startups

A Parliamentary panel has batted for the abolition of long-term capital gains tax for all investments in startups which are made through collective investment vehicles such as angel funds, alternate investment funds and investment Limited Liability Partnerships. “The Committee would like to strongly recommend that tax on Long Term Capital Gains be abolished for all investments in startup companies which are made through collective investment vehicles such as angel funds, AIFs, and investment LLPs,” the committee said in its report “Financing The Startup Ecosystem”. “The Parliamentary Panel has given voice to a longstanding ask of the Indian startup ecosystem. Investments into startups are in the form of primary investments into the company, which in turn generates new assets, economic growth and jobs. These measures, if adopted, will help accelerate the Indian startup ecosystem and allow them to meet the PM’s goal of startups contributing 20% of India $5 trillion GDP by 2025,” said Siddarth Pai, founding partner at 3one4 Capital & co-chair Regulatory Affairs Committee at IVCA. The panel recommended that after this two year period, the Securities Transaction Tax may be applied to CIVs so that revenue neutrality is maintained. At present, LTCG earned by foreign investors in private companies attracts taxation at concessional rate of 10%, in comparison to the domestic VC/PE investments being taxed at 20% with an enhanced surcharge of 37%. The panel also proposed that the sectors in which Foreign Venture Capital Investor are allowed to invest should be expanded to include all sectors where Foreign Direct Investment is permitted, as this route provides a flexible investment framework and hence will be able to attract significant capital in the economy.