House panel favours abolition of LTCG tax on investments in startups

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The Standing Committee on Finance has recommended several measures to reduce the dependence on the US and China for funding startups and Unicorns in the country.In a report titled “Financing the startup ecosystem” submitted to the Lok Sabha Speaker last week, the committee has strongly recommended that the tax on Long Term Capital Gains (LTCG) 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. At a minimum, this should be done for at least the next 2 years to encourage investments during the pandemic period.After this 2-year period, the Securities Transaction Tax (STT) may be applied to CIVs so that revenue neutrality is maintained. Investments by CIVs are transparently done and have to be done at fair market value. Thus, it is easy to calculate the STT associated with these investments. This can be done in lieu of imposing LTCG on these CIVs and to make the taxation system fairer, less cumbersome,and transparent. This will also ensure that investments in unlisted securities are on par with investments in listed securities, the report said.The committee, headed by its chairperson …

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