Budget 2024: To boost investment, the Budget provides grants to compliant venture capital funds

2024-07-27 00:30:00

NEW DELHI: Venture capital funds based in Gujarat’s International Finance Tec-City will not have to disclose the source of their funding after budget proposals are implemented, officials said. They said the relaxation was included in the budget as part of measures to promote investment and employment.“The move is to reduce the compliance burden on venture capital funds headquartered in the International Financial Services Centre of India (IFSC) and bring them on par with funds registered with the Securities and Exchange Board of India (Sebi),” said a senior government official on condition of anonymity.

“It is proposed that venture capital funds located in international financial services centres no longer be required to explain the source of funds when they provide loans/other amounts to taxpayers,” the budget reads.

Officials, however, said the exemption would not provide any relief under the Prevention of Money Laundering Act (PMLA) and action would be taken if violations were detected.

The Budget also proposes that retail schemes and exchange-traded funds in the IFSC will enjoy tax exemptions similar to those of scheduled funds. Also, once the Budget is approved, no additional tax will be levied on income derived from securities by scheduled funds in the IFSC.

“The proposals will exempt venture capital funds regulated by the IFSC from scrutiny under Section 68 of the Income Tax Act,” Gokul Chaudhri, president of tax at Deloitte South Asia, told The Economic Times. He said this was similar to the exemption given to venture capital funds regulated by the Securities and Exchange Board of India last year.

Chaudhri said Section 68 was reworded a few years ago to expand its scope. “In effect, companies that receive funds from investors may face scrutiny if the investors do not have documents disclosing the source of funds.”

Core Settlement Guarantee Fund
The Budget also proposed that certain income of the Core Settlement Guarantee Fund set up at the IFSC should be treated as tax-exempt. Besides, it said that Section 94B would not be applicable to certain financial companies located at the IFSC.

This section discusses concerns about “thin capital”, which reduces the taxability of interest income.

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