Skip to main content

Union Budget and Impact on VCs

Blogger Anindita ( check out her blog..she has a dew fresh writing style) posted a comment asking my thoughts on Chidambaram's tax proposals related to venture capital funds in the new union budget.

I feel VC is like any other business activity and should be taxed. In the US, they have a system of creating transparent entities for taxation purposes, which we don't yet have in India. One could argue that VCs should be given tax exemption because the industry is still in a nascent stage in India. In fact, a number of players in the industry seem to feel that way.

So, there is a confusion here. The FM has listed software and hardware, but not Internet :-) Some people interpret internet ventures as software plays. Definitely, if there is a Software-As-Service (SaaS) venture out there, they could request the pass thru benefit and should get it. But what about B2C plays (Naukri, Bharat Matrimony, 99 Acres and dozens of other such ventures) that have attracted VC funds? If the VC fund makes a killing thru exit or IPO, should it be taxed or not? I think it should be.

However, except for Internet plays, most other sectors still enjoy the tax exemption.But most of the funding seems to happen in the internet space :-)

So, if these proposals see a split in the VC firms - firms dividing themselves into separate entities- one to invest in sectors where there is a pass thru benefit, and the other to focus on taxable sectors, we could hopefully see more traction in sectors that are crying out for angel/seed investment - bio-technology, agri research, nano tech etc.,

However, to encourage micro-funding in all the sectors, Govt could/should allow pass thru benefits to small seed funds (less than $100 mil and no individual investment more than Rs.1 Cr) - this is purely my personal opinion.

Overall, these proposals could see more domestic funds moving to offshore locations like Mauritius.Already, Erasmic is setup there but run from Bangalore.

One thing I don't fully agree with is the proposal to treat ESOPs on par with employee perks and apply FBT (fringe benefit tax).

Here are a couple of posts that discuss this issue in a lot more detail:

Venture Intelligence - Tax proposal 173 in Budget '07-08: Impact on Indian Private Equity

VC Circle - How Budget Would Impact VC Funds: Tax Man's Perspective


Popular posts from this blog

General Elections 2009 - Analysis of AP Results

Caution: Long post :)

The newspapers, the blogworld, and the electronic media are full of election results analysis this week. With the amazing victory of Indian National Congress (INC) led UPA in the Lok Sabha elections, and the INC's successful defense of its citadel in Andhra Pradesh (AP), hopes have been raised because of assured stability at both centre and state for the next five years.

Even though I am not a supporter of Congress politics, I find it hard not to feel happy about the results because: 1.The Left has been routed in its strongholds and 2.Indian electorate has decisively voted for a National party(though for the wrong one !) ; except for Bihar and Orissa, INC has fared well wherever it was pitted against the regional parties. This bodes well for our polity. I will have another post where I am going to look at the short, medium and long term possibilities for inclusive growth and economic policy under the new dispensation.

For now, I would like to indulge in some ana…

How I (could have) made Rs.100,000 from Rs.25,000 investment in 4 months..

Note:This may read like a story.But it is not. I actually want to talk about an investment idea.But as I can never get to the point quickly, you, my reader, has to read through my 'sonta dabba' (trans: blowing one's trumpet) first.

I have a friend called Srinivas who directed a critically acclaimed, but commercially not very successful Telugu movie. This was a few years ago. Srinivas and I worked on a script last year, and we were ready to meet producers around March of this year. We did meet a couple of producers who showed interest.And then the farming bug bit Srinivas big time.

Actually, Srinivas was always interested in rural development and leveraging traditional knowledge systems along with modern technology.We both had many conversations around how, by creating a database of traditional farming techniques, we could make the knowledge available to every one. We would discuss the script for a while, and then drift into a discussion on farming stories. We both have come …

Kasi Yatra - Part 4

We are back. So, the autos sped through some fairly narrow lanes of Varanasi and deposited us in front of a street with a door at its entrance (yes, a door !). The board read 'Sri Rama Taraka Andhra Ashram'. The place where we had accommodation (Karivena Brahmana Satram) was supposed to be in the vicinity. I called the Karivena Satram manager on the cell and he gave me directions. Apparently, the Satram (travelers lodge) is some 150 m from where we were. The autos wouldn't /couldn't go beyond the spot where we got down. So, I went first through the street-door and after a couple of turns, found my self in an area full of pilgrims from Andhra Pradesh, and a few restaurants doing brisk business in Idli, Dosa, Vada, Coffee and Tea. (Great ! Food won't be an issue in this area, I thought). I found the Andhra Ashram too, and a shop keeper there guided me towards the Karivena Satram.
Thirty minutes later, we were all checked in at Karivena Satram. We took four rooms and e…