Dec’13 Indian Tax laws allow a pass through benefit, so that income is only taxed in the hand of the investor and not taxed at the VCF level. However, It is advisable to consult a tax expert because every exit has its own nuances. The main tax implications for the beneficiaries of the fund are –
- Exit gains on sale / buy back of securities – The gains arising from the sale of shares held in the Portfolio Companies may be treated either as “capital gains” or as “business income” for Indian tax purposes. In case of “capital gains” –
- The short term capital gains are taxed at the marginal rate of tax that is full tax rate applicable to the investor e.g. an individual resident in India is taxed at 30.90%.
- Long term capital gains: There will be no tax on Resident/ Non Residents in case shares are listed in India and the sale is subject to Securities Transaction Tax (STT) or in the case of sale of unlisted equity shares under an offer for sale to the public included in an initial public offer and the sale is subject to STT. Otherwise, for unlisted shares –
- For Resident in India after considering indexation
- if beneficiary is a Domestic Company, it is 21.63%.
- if beneficiary is any other assessee, it is 20.60%
- For Resident in India without indexation benefit or sale not subjected to STT (i.e. off market transactions)
- if beneficiary is a Domestic Company, it is 10.82%.
- if beneficiary is other assessee, it is 10.30%.
- For Non Resident :
- if beneficiary is a Foreign Company, it is 10.51%.
- if beneficiary is any other assessee, it is 10.30%.