The Parliamentary standing committee has recommended the abolition of long-term capital gains (LTCG) for at least two years on startup investments initiated by collective investment vehicles (CIVs) such as alternative investment funds (AIFs), angel funds, and certain limited liability partnerships (LLPs). The objective of LTCG tax abolition on startup investments will be to motivate investments during the pandemic period.
After the completion of two years, the Securities Transaction Tax (STT) might be applicable to CIVs in order to maintain revenue neutrality. By replacing LTCG with STT, the taxation system will become transparent and less cumbersome. Also, it will make sure that the investments within unlisted securities are at par with the investments within listed securities.
The Parliamentary standing committee was headed by Jayant Sinha, the committee’s chairperson and also the former minister of state for finance. He suggested that the Small Industries Development Bank of India’s (SIDBI) Fund of Funds vehicle needs an expansion. He recommended that it needs to be completely utilised and operationalised to fulfil an anchor investment role.
The panel endorsed the industry’s view that capital gains on AIF returns should be calculated after setting off management fees. Additionally, asset management services provided to foreign investors should be treated as an export service and should not be subjected to the goods and services tax (GST).
The parliamentary panel has also recommended that the tax exemption concerning income related to the investment made in infrastructure projects only needs to be provided to all sectors. This exemption has been provided by the Finance Act 2020 for investments made prior to 31 March 2024.
The Committee has also noticed that successful Initial Public Offerings (IPOs) of Infrastructure Investment Trust (InvITs) and Real Estate Investment Trusts (REITs) have already proved that asset portfolios can be grouped for attracting a specific investor type. Hence, the committee is likely to recommend that NBFCs also need to be allowed to be listed on stock exchanges for attracting a larger investment pool.
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