Major recommendations of the K B Chandrashekhar Committee on venture capital may be implemented soon. These include raising the limit for Indian citizens to invest in employee stock options of foreign companies from $10,000 to $100,000.
In an interview with Business Standard, Securities and Exchange Board of India senior executive director and convenor of the panel L K Singhvi said the regulator had already taken up recommendations pertaining to the the Reserve Bank of India with the bank. Sebi would bring in more changes at its own end soon, he added.
"We have had a series of discussions with the RBI and we expect the decision on allowing Indian residents to invest up to $100,000 over a five-year period in ESOPs of a foreign company from the current limit of $10,000 to be implemented soon," said Singhvi.
Sebi had urged finance minister Yashwant Sinha to withdraw the 20 per cent tax on venture capital funds and only tax the income in the hands of the investor. The government announced the change on Wednesday.
"As the government has agreed to our recommendation, we will now be able to see venture capital funds being set up with a mix of both domestic and foreign funds. In the past year, 14 venture capital funds have registered with us as against 8 till then. There are another 5-6 in the pipeline. With the government accepting our recommendation to treat a venture capital fund as a pass through, we expect the industry to grow in a healthy and desirable manner," Singhvi said.
"Funds are used to fiscal neutrality. If they had been asked to pay a tax then they would have preferred to come through tax havens to avoid it. This would have led to a segregation between funds raised abroad and in India. Now, there is an incentive for funds to stay under one umbrella. In short, they will now grow in an institutionalised manner," he said, adding that had these recommendations not been accepted there would have not been any institutionalised venture capital industry.
"We will be framing our guidelines on venture capital. We will make the changes to our primary market guidelines allowing companies to skip the three year profit track record if they are funded by venture capital funds on the lines of the current exemption given if funded by a bank or a financial institution," said Singhvi.
