Securities and Exchange Board of India
5.1Internationally, VCFs being dedicated pools of capital, operate in fiscal neutrality and are treated as pass through vehicles. In any case, the investors of VCFs and VCUs are subject to income tax. Through a series of changes in the Tax Laws, a distinct fiscal frame work has already been created over the last decade, for taxation of Mutual Funds. The fiscal regime for mutual funds quite simply eliminated the tax at the pool level while maintaining taxation at the investor level. Thereby it avoided double taxation of the same stream of income of an unincorporated pool and concomitantly maintained single tax at investor level.
5.2In addition, venture capital activities aid to the growth of industrial activity, which would indirectly add to the tax payers base. Global experience shows that venture funded enterprises have created more wealth and consequent tax revenues. It is certainly believed that in India also, with the active venture capital funding, there would be a very large number of successful enterprises which would add to the national wealth creation including the tax revenues.
Report of K B Chandrasekhar Committee on Venture Capital21