The high-level panel appointed by the Union finance ministry submitted its report on December 19 to the government and recommended ways to remove regulatory friction and accelerate venture capital (VC) and private equity (PE) investments in India, sources privy to the developments told CNBC-TV18.

The panel was headed by former Sebi chairman M Damodaran. The report, which is under examination by the Department of Economic Affairs, has recommended a slew of direct tax recommendations for the upcoming Union Budget and asked that the government support the capital needs of startups in a volatile environment, said people familiar with the matter.

In its report, the six-member committee has asked the government to treat carried interest as capital gains and requested tax at the investor's end. Currently, fund managers are burdened with Goods and Services Tax (GST) on carried interest as imposed by the government, according to multiple people familiar with the development.

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Further, it said the fund management services provided to foreign investors should be treated as a deemed export and foreign investors should not be asked to pay 18 percent GST on availing service of domestic fund managers, sources in the know told CNBC-TV18.

The panel looked at the requirements of global funds and held consultations with the Department of Economic Affairs, the Department for Promotion of Industry and Internal Trade, the Reserve Bank of India, and the Securities and Exchange Board of India (Sebi), sources close to the development said.

Last September, the Union finance ministry had set up a high-level panel to look into issues being faced by venture capital and private equity investors. Union Finance Minister Nirmala Sitharaman, while presenting the Union Budget 2022-23, had announced the setting up of the expert committee to examine and suggest appropriate measures related to venture capital and private equity.

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The other members of the panel are G Mahalingam, former member Sebi, D P Nagendra Kumar former member CBIC, Ashish Verma former Principal Commissioner Income Tax, Poonam Gupta DG National Council of Applied Economic Research, and P R Acharya, Director Arun Jaitley National Institute of Financial Management.

Gopal Srinivasan, chairman of TVS Capital Funds Ltd said the carried interest is actually capital gains and the industry is asking for clarity. He said the goal is to scale up the industry and hopefully, other changes the sector is asking for will also come around.

First Published:Jan 5, 2023 6:02 PM IST