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Government needs to clarify on angel tax exemption, tax capital gains alike: Mohandas Pai

Pai met Sitharaman with a few startup entrepreneurs in New Delhi on Wednesday, and discussed issues concerning the startup sector, among others.

, ET Bureau|
Sep 20, 2019, 05.57 PM IST
Venture capitalist TV Mohandas Pai (File Photo)
BENGALURU: Venture capitalist TV Mohandas Pai has urged Finance Minister Nirmala Sitharaman to treat capital gains from both unlisted and listed companies alike for taxation purposes in the interest of startup community.

The government taxes capital gains from unlisted firms at 20%, but at a reduced rate of 10% on capital gains from listed firms. “Equity investments in unlisted firms carry higher risk due to lack of liquidity and lack of proper price discovery. Investors cannot be taxed more for taking a higher risk,” Pai, a former director at Infosys, told ET. “In the startup area, this higher tax is a big disincentive,” he said.

Pai met Sitharaman with a few startup entrepreneurs in New Delhi on Wednesday, and discussed issues concerning the startup sector, among others. The Minister, he said, heard them and promised to do her best. “Capital gains from unlisted firms should also be taxed at 10% as in the case of capital gains from listed companies,” he said.

The chairman at Aarin Capital highlighted issues related to angel taxation. The angel investors, he said, can claim full benefits of angel tax exemptions only if the Department of Industrial Policy & Promotion (DIPP) makes necessary modifications in the regulations for the tax on startups. The DIPP says the exemption will be removed if startups invest any money in loans and advances or equity. This prohibits them from putting surplus money in treasury, money market mutual funds or investing in a subsidiary. This requires a clarification as the penalty for doing any of these is up to 200%, which, he said, should go.

On the subject of alternative investment fund (AIF), Pai conveyed to the Minister that all pooling vehicles should be treated alike for taxation purposes. The category 3 of AIF, he said, is also a pooling vehicle, and hence, it deserves the same treatment as category 1 and 2 of AIF. He also said foreign portfolio investment (FPI) was also an investment vehicle, and hence should be treated fairly. Sitharaman, however, addressed the FPI issue on Friday, and also removed surcharge on capital gains from stock market sales.

CONSUMER FINANCE: The former Infosys director said non-banking finance companies (NBFCs) account for 40% of consumer financing today. The banks should refinance NBFCs to revive the economy and increase consumption. “Liquidity is there with the banks, not with consumers,” he said. The team also discussed NBFCs role in real estate financing. The members argued for a cut in overall taxes.

Pai said the FM responded positively when they requested her to come down to Bengalurusoon to meet up with startup entrepreneurs.

Also Read

342 startups get angel tax exemption since February

DPIIT working on definition of Accredited Investors for Angel Tax exemption

Angel tax exemption may be hiked to Rs 25 crore

Investors see devil in the details, say angel tax exemption will not benefit several startups

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