The Budget provides a boost to alternative investment funds industry

By Gopal Srinivasan

On December 17th, 2021, when the Hon’ble Prime Minister invited members of the Venture Capital and Private Equity Association (IVCA) to meet him and the Hon’ble Finance Minister. The manner in which we were listened to and the Questions which were so sharply asked and the wonderful summary made by the Hon’ble Finance Minster gave us all the hope that some good newsfor the AIF industry would be afoot in the forthcoming Budget.

Coming to the Budget itself, there were four recommendations the Industry Association has made to the Hon’ble Finance Minister and her dream team of bureaucrats. All four have been addressed. We are delighted and grateful.

1. First one was to form an expert committee to study the complex inter- ministerial and regulatory issues around the AIF Industry: An expert committee has been set up.

2. Second one was to create Thematic Fund-of-Funds, with Private Public partnerships, and emulate the success of SIDBI and NIIF in creating a multiplier effect by seeding multiple AIFs with their Fund of Funds. This too has been given voice, and the choice of Fund themes emerging areas like climate transition and deep-tech are very critical for this country’s future.

3. Third recommendation which was to align the rates of taxation of LTCG both for the public markets and private markets. One part of it has been addressed. The surcharge has been made uniform for private and public market Long-term capital Gains Tax (LTCG) at 15%. Most of the domestic money for the AIF Industry in India still comes from the large family offices where the rate of surcharge were at 37%, and that now stands reduced to 15%, the same as that of public markets. The will enhance the supply of investments into start-ups and the AIF industry.

I am sure given the importance that the AIF industry has been accorded, it is only a matter of time a complete alignment takes place.

4. Lastly, we had suggested to the Government that as far as start-ups are concerned the way ESOP taxation is done must be brought in line with the global practices. That requires more work. However, the Government has extended the period of eligibility for start-up taxation by one year, to March 2023, and this is a good step.

The industry is deeply grateful for the Hon’ble Finance Minister, her team and the Hon’ble Prime Minister for the encouragement and the policy measures announced in this budget. No doubt, funding India’s start-up eco-system and the next-gen entrepreneurs is the best way to make sure that “new India” becomes a reality: through the resurgent economic activity and innovation that these founders and entrepreneurs provide.

(The writer is Chairman, TVS Capital Funds, and Board Member, IVCA. Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited).