• investor.relations@yournest.in
Submit your Proposal

Regulatory Updates – Annual Report – March 31, 2025 - YourNest Venture Capital

Regulatory Updates – Annual Report – March 31, 2025

(A) SEBI UPDATES:

  • Responsibility of regulated entities in use of AI tools: SEBI has made it mandatory for all regulated entities to take full accountability when using AI tools, including handling data responsibility and ensuring legal compliance.
  • Extension of Demat Compliance Timelines for AIFs: SEBI has extended the timeline for Alternative Investment Funds (AIFs) to mandatorily hold their investments in dematerialised (demat) form. As per the revised regulations:
  1. Investments made by AIFs on or after 1 July 2025 must be held in demat form.
  2. Investments made in certain investee companies (e.g., those mandated to facilitate demat or controlled by SEBI-registered entities) must be dematerialised by 31 October 2025.
  3. The dematerialisation requirement will not apply to schemes of AIFs whose tenure ends on or before 31 October 2025.

Similarly, AIF schemes that are already in their extended tenure as of 14 February 2025 are exempt from the requirement.

  • Under Section 15EA of the SEBI Act, 1992, SEBI can levy monetary penalties for non-compliance with AIF Regulations. The Fund, along with its Investment Manager, Trustee, and KMP, is responsible for ensuring adherence to the Code of Conduct and acting on audit findings. Failure to do so, especially in cases of material violations, can result in penalties on both the fund and individuals involved.
  • Amendment in Fee Collection Norms for Investment and Research Advisers: IAs and RAs may now charge advance fees up to one year post client approval, instead of the earlier limit of two quarters (IAs) and one quarter (RAs).
  • Extension of Cybersecurity and Cyber Resilience Frame Compliance Timeline for Regulated Entities: SEBI has extended the deadline to comply with the Cybersecurity and Cyber Resilience Framework till 30 June 2025 for all Regulated Entities, except Market Infrastructure Institutions, KYC Registration Agencies, and Qualified Registrars to an Issue and Share Transfer Agents.
  • SEBI extends deadline for venture capital firms to migrate to AIF regulations: SEBI has extended the deadline for Venture Capital Funds to migrate to AIF regulations by one year, from July 19, 2025, to July 19, 2026. This applies to VCFs with schemes that are still active and not yet fully wound up.

(B) INCOME TAX UPDATES:

  • Taxation Clarity for Category I and II AIFs: Securities held by Category I and II AIFs will now be classified strictly as capital assets, ensuring that income from these securities is treated as capital gains. This change provides greater tax certainty and may help reduce the overall tax burden.
  • Where income is exempt under a DTAA, the assessee is still eligible to carry forward losses under the Income Tax Act. The assessee has the option to apply the provisions of the DTAA and the Act independently for different heads of income within the same assessment year, depending on which is more beneficial. There is no requirement to set off such losses against exempt income in order to be carried forward.
  • If Maximum Marginal Rate is applicable, the highest tax rate and surcharge (including 37%) will apply, even if the total income is below ₹50 lakhs.
  • Indexation benefit under section 48 of the Income Tax Act is available to a resident assessee for computing capital gains, irrespective of whether the asset is held in India or abroad. The law does not distinguish between Indian and foreign assets.

Carry forward of LTCL without adjusting against exempt LTCG: Where an assessee has LTCG exempt under DTAA, such gains are not required to be adjusted against LTCL. The assessee is allowed to carry forward the entire LTCL as per the Income Tax Act. Each capital transaction is treated as a separate source, so exemption on one does not affect the carry forward of loss on another.