AIFs, which include venture capital (VC) and private equity (PE) funds domiciled in India, are among the Alternative Investment Funds (AIFs) that the government is looking at ways to reduce the tax burden on overseas investors who contribute money to.
This action follows the panel’s findings, which was delivered in December and was headed by M. Damodaran, a former chairman of the Securities and Exchange Board of India (SEBI).
Further, other important recommendations include granting “zero-rated or export status” to India-based AIFs with overseas investors, standardising the taxation of “carried interest,” reducing regulations for employee stock option programmes, and coordinating capital gains taxes for listed and unlisted securities.
A strategy for PE/VC investment is now being established, and it may alleviate the tax and regulatory issues that this class of investors confront.
According to the official, it is anticipated to be introduced during the monsoon session of Parliament. The official claims that there is currently inter-ministerial discussion over the viability of following some of the panel’s recommendations.
Furthermore, the framework supports PE investment from both domestic and international players and takes into account changes to the relevant corporate legislation, listing standards, and tax laws.
The panel’s main recommendations included adopting an unified perspective and classifying carried interest as “return on investment” in order to exclude it from the GST.
Regarding zero-rated status, there is yet another suggestion. According to reports, the panel recommended that fund management services be considered as exports under Section 147 of the Central GST. Insofar as it counts as foreign investment, this applies to fund managers that provide services to an AIF. PE/VC funds based in foreign jurisdictions are now free from GST.
In addition to this, the panel extolled the virtues of putting capital gains tax rates for investors on par with those for international portfolio investors.
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