Currently, the Venture Capital Funds/Venture Capital Companies (VCF/VCC) enjoy a tax pass-through status only with respect to investment in specified sectors such as bio-technology, nano-technology, etc. The Bill proposes to extend the tax pass-through benefit to VCFs irrespective of the investment sector, by aligning the definition of VCU in Sec. 10(23FB)(c) of the Income-tax Act with that of SEBI Regulations.
Sec. 115U - Investors are now proposed to be taxed when income accrues or arises or is received by the VCF/VCC, as against the current law, where the taxability would be triggered only when the income was distributed by the VCF/VCC to its investors. This could potentially result in investors being required to pay tax even when the VCC/VCF has not made any distribution.
Additionally, VCFs/VCCs are no more exempt from the provisions of dividend distribution tax and withholding tax.
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