- Jayant Sinha, the chairperson of the standing committee on finance, submitted the report to the Speaker.
- A parliamentary panel has recommended abolishing tax on long-term capital gains (LTCG) for investments in startups
- that are made through collective investment vehicles (CIVs)
- Such as angel funds, alternate investment funds (AIFs) and limited liability partnerships (LLPs) engaged in the business of making investments.
- At a minimum, this should be done for at least the next two years to encourage investments during the pandemic period.
- Report- ‘Financing the Startup Ecosystem’.
- After the two-year period, the Securities Transaction Tax (STT) could be applied to CIVs to maintain revenue neutrality.
- LTCG was abolished and STT was introduced in FY 2005.
- LTCG was re-introduced on listed equity shares and equity mutual fund units in FY 2019.
- This resulted in double taxation.
- Abolition of LTCG tax will remove this double taxation and enable investors to choose investments based on risk and return instead of being driven by tax considerations.
- The loss of revenue from abolition of LTCG will be minuscule compared to the benefits generated as it will incentivise taxpayers to kick-start investment and also create jobs.
- Suggesting that Indian start-ups should reduce dependency on foreign funding sources like the US and China, the Parliamentary Standing Committee on Finance called for expansion of the Small Industries Development Bank of India (SIDBI) Fund-of-Funds vehicle to allow it to play an anchor investor role.
