There Will Be No Tax On Venture Caps Income

The government has announced that venture capital funds will enjoy a complete pass-through status, and there will be no tax on their income.

Moreover, income distributed by the funds will be taxed at the hands of the investors at rates applicable to the nature of the income.

According to the new norms, venture capital funds operating from India will not have to pay tax on distributed and undistributed profits and tax will only have to be paid by the investor as per his status.

The finance minster, while introducing the Finance Bill in the Lok Sabha yesterday, proposed a flat tax rate of 20 per cent on the income distributed by a venture capital company or a venture capital fund by inserting a new chapter XII-F.

 

He said the tax, levied under Section 115U of the Income Tax Act, would be the final tax payable by a venture capital company or a venture capital fund.

"It is further proposed that a venture capital company or a venture capital fund will be liable to pay income tax at the rate of 20 per cent, in respect of any income which is not distributed to its investors within such period as may be specified with the approval of the Central government, by the Securities and Exchange Board of India or by a notification," he said.

The announcement elicited strong opposition from the venture capital industry.

The finance minister also extended Sections 10A/10B of the Income Tax Act to the information technology-enabled services companies.

According to the National Association of Software and Services Companies, the new announcements by the minister will have a positive impact on the domestic information technology industry.

The National Association of Software and Services Companies has also projected that at least $3 billion of venture capital money will come into India in the next 18 to 24 months.

According to Nasscom president Dewang Mehta, "We believe that now the differentiation between overseas and domestic venture capital funds has been totally removed and the venture capital movement will take off in the country."

According to P Rajendran, chief operating officer, NIIT "These moves by the

government will help the domestic information technology industry. The aspirations of the software industry to be a global information technology superpower have now got back the much needed respiration."