A Parliamentary panel has batted for the abolition of long-term capital gains (LTCG) tax for all investments in startups which are made through collective investment vehicles such as angel funds, alternate investment funds and investment Limited Liability Partnerships.
The former minister of state for finance Jayant Sinha headed Standing Committee on Finance in its report tabled on Tuesday said the tax should be removed at least for the next two years to encourage investments amid the pandemic.
It also recommended that the exemption for income on investments made before March 31, 2024, subject to the investment being held for a period of at least 36 months as incentivised in the Finance Act, 2020, should be provided to long-term and patient capital invested across all sectors.
Noting that businesses are stressed for liquidity and valuations of businesses have softened due to the Covid-19 pandemic, it also said the pricing guidelines prescribed under the various laws and regulations by SEBI, Income Tax Act, Companies Act, FEMA should be made more consistent to provide a certain, coherent and simple framework for facilitating large-scale investments in India.
“The Committee would like to strongly recommend that tax on Long Term Capital Gains be abolished for all investments in startup companies (as designated by DPIIT) which are made through collective investment vehicles (CIVs) such as angel funds, AIFs, and investment LLPs,” the committee said in its report “Financing The Startup Ecosystem”.
India’s startup sector welcome the recommendation of abolishing long term capital gains (LTCG) in startup investments. Industry leaders said that the move would open the floodgates for Rupee (domestic) capital to flow into the sector, which has been sorely lacking.
Others pointed out that removing LTCG or bringing it at par with taxation of gains made through listed securities on the secondary market, has been one of the most long standing asks of the industry.
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