There was not much of direct significance for private equity and venture capital industry in the Budget speech of the Finance Minister. However, a closer look at the fine print reveals a procedural clarification which might seem like an unnecessary hiccup for venture capital funds.
The existing provisions of the IT Act exempts the income of a venture capital company (VCC) or venture capital fund (VCF) from investment in a venture capital undertaking from the obligation of furnishing their return of income under section 139 of the Act. Instead they are required to furnish a statement giving details of the nature of the income paid or credited during the previous year and other relevant details.
The Budget has proposed to amend sub-section (4C) of section 139 so as to provide that VCC and VCFs shall, if the total income in respect of which such fund, trust or company is assessable, exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year.
The amendments will take effect from April 1, 2015.
We spoke to some executives of some top VC funds to understand their views on this:
K G Subramanian, chief financial officer of Nexus Venture Partners, said, “The Indian VC firms who were structured as trusts were not filing returns earlier since they did not have taxable income. Trusts were exempted from filing returns in the absence of taxable income. With this budget, they have to file nil income return even if they do not have taxable income.”
R Natarajan, managing director & CFO of Helion Venture Partners, said, earlier investors were either being aggressive and not filing returns, being moderate and filing return if there was any exit of India asset and claimed exemption under treaty or on a conservative note filed return whether or not there was a taxable income.
“The Act clarifies that we have to follow conservative approach. Clarity has come and it is good for the industry,” he said.
(Edited by Joby Puthuparampil Johnson)