The Indian Venture Capital Association (IVCA) has asked the government to eradicate sectoral specification and restore tax pass-through benefits across sectors for venture capital funds, reports the Economic Times.
A pass-through means an exemption from paying taxes by the exempted group, explains the Times, adding that the tax payable by the group is passed on to the end beneficiary, in this case, the investors or limited partners in these VC funds. Citing the Finance Act, 2007, the newspaper says the benefit has been extended to investments in only nine sectors — information technology, biotechnology, nanotechnology, poultry, dairy, bio-fuels, hotels and hospitality centres, seed research and chemical research & development.
The Times reveals the the industry association has asked the finance ministry to treat VCFs (venture capital funds) at par with mutual funds, which are automatically exempted from paying taxes at the pool level.
“Pass-through basis of taxation without sectoral restrictions will resolve several of the current issues in the taxation of VCFs,"Hiresh Wadhwani, partner, financial services, Ernst & Young, told the Times. Wadhwani adds that such a provision will allow the investors in VCFs to be taxed on income directly without any revenue loss to the government.