Indian panel proposes tax sops for startup investors

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A parliamentary panel has proposed tax incentives for startups, including removal of long-term capital gains (LTCG) tax, on investments in such companies on the grounds that a strong startup ecosystem can propel investments, jobs, and demand creation.

The parliamentary standing committee on finance led by Jayant Sinha said in a report tabled in Parliament that it “would like to strongly recommend that tax on LTCG be abolished for all investments in startup companies (as designated by the department for promotion of industry and internal trade) which are made through collective investment vehicles such as angel funds, alternate investment funds and investment LLPs.”

The panel said the abolition of LTCG tax should be for at least the next two years to encourage investments.

Post this period, securities transaction tax (STT) may be applied so that revenue neutrality is maintained, the panel said. STT is now levied only on listed securities and the panel believes applying it to unlisted shares, too, will bring parity between the two.

“Investments by collective investment vehicles are transparently done and have to be done at fair market value. Thus, it is easy to calculate STT associated with these investments. This can be done in lieu of imposing LTCG on these CIVs (collective investment vehicles) and to make the taxation system fairer, less cumbersome, and transparent. This will also ensure investments in unlisted securities are on par with investments in listed securities,” the panel noted.

“The committee believes and would urge that a strong support system to finance the startup ecosystem should be put in place to drive a sharp post-pandemic revival and sustainably high economic growth thereafter,” it said.

An industry official said the panel has given voice to a long-standing request of startups. “Investments into startups are in the form of primary investments into the company, which in turn generates new assets, economic growth and jobs. Taxing them at 2.5 times the rate for the listed secondary market is counter-productive and creates an active disincentive for greater rupee capital participation,” Siddarth Pai, founding partner at 3one4 Capital and co-chair, regulatory affairs committee at Indian Private Equity and Venture Capital Association (IVCA) said.

This article was first published on livemint.com

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.