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Parl panel for abolishing tax on LTCG from investments in startups
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SME Times News Bureau | 15 Sep, 2020
The Standing Committee on
Finance (2019-20) has recommended to the Centre to abolish tax on Long
Term Capital Gains for all investments in startups which are made
through collective investment vehicles (CIVs) such as angel funds,
alternate investment funds (AIF), and investment LLPs.
The
committee in its report on "Financing The Startup Ecosystem" said the
tax should be removed at least for the next two years to encourage
investments amid the pandemic.
"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," it said.
It suggested that after this
2 year period, the Securities Transaction Tax (STT) may be applied to
collective investment vehicles (CIV) so that revenue neutrality is
maintained.
Investments by CIVs are transparently done and have
to be done at fair market value, the Standing Committee said, adding
that 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," it said.
It has also
recommended that there should be no punishing of domestic risk capital
at any level, as the current tax disparity is proving advantageous to
foreign capital through low tax jurisdictions and low taxes for fund
management services.
As per the panel, such a move will establish
a level playing field for domestic investments in comparison to foreign
investments and domestic listed in comparison to unlisted securities.
The
committee recommended that to encourage domestic investments in
unlisted debt and equity securities, once the pandemic period
concessions are lifted, CIV capital gains should always be taxed at the
same rate as listed securities.
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