Securities and Exchange Board of India
In the above background, following recommendations are proposed :
The existing section 10(23FA) of Income Tax Act needs to be re-enacted to provide for automatic income tax exemption to VCFs registered with SEBI (like in the case of mutual funds) which will eliminate the taxation at the pool level while maintaining the same at investor level. The new Income tax Section 10(23FA) would then read as under :
“Any income of a registered venture capital fund under the Securities and Exchange Board of India Act 1992 or Regulations made thereunder”.
Consequently, no separate rules as in 2D would be needed.
6.1Foreign Venture Capital Investors(FVCIs)
6.1.1At present, offshore investors make investment in VCU either by investing in domestic venture capital funds by seeking one time approval from FIPB through FDI route directly. However, this requires FIPB approval for every single investment. Further, for every investment and disinvestment, RBI approvals are required in respect of pricing of securities. The Government of India guidelines provide for one time FIPB approval in the case of venture capital fund with 100% investment by offshore investors, but in practice, requirement of taking approval for pricing of securities from RBI remains for every investment and disinvestment. Foreign investors find the requirements of taking FIPB/RBI approvals very cumbersome and time consuming.
6.1.2Most of the offshore investors are incorporated in tax havens particularly Mauritius to have the benefit of double tax treaty and they do not have an incidence of tax in India. These investors feel that if making investment in India is made hassle free and automatic in a transparent manner with proper tax exemptions, there would be no need for them to adopt Mauritius route and avoid several operational problems. FVCIs therefore shall be provided tax exemptions. This provision will put all FVCIs, whether investing through Mauritius route or not, on the same footing.
6.1.3Realising the importance of venture capital investments for the development of industry and business in India, it is necessary that inflow of such investments are encouraged and facilitated. In case of FIIs there is already a hassle free and automatic route for investment and repatriation without specific FIPB/RBI approval for investments and disinvestments. Once registered with SEBI, FIIs
Report of K B Chandrasekhar Committee on Venture Capital22