We have asked the finance ministry to restore the pass-through status for all sectors. At present, under the Income Tax Act, this benefit is restricted to specified sectors. Considering the requirement for capital in the economy, the benefit of the Section 10(23FB) should be extended to all sectors as permitted by the Securities and Exchange Board of India. Moreover, most of the venture capital funds (VCFs) are set up in the form of a trust.
With the pass-through status not being available for investments in sectors other than the specified sectors, these trusts are governed by the provisions of trust taxation. That are archaic. These are meant for private trusts and are difficult to apply in the context of contributory trusts or pooling vehicles. The outcome of trust taxation principles to a VCF adds to complexity and results in more uncertainties for investors.
We have also asked for congruence of definition of venture capital undertakings (VCU). VCFs are registered with Sebi and need to invest in accordance with its regulations. Various committees have recommend recognising Sebi as the nodal authority for governance of VC funds.
Mahendra Swarup
President, Indian Venture Capital Association