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Angel Investors To Qualify for Tax Pass Through, SMEs Can List on SME Exchange without IPO

Finance Minister P Chidambaram. Image Credit: Wiki
Finance Minister P Chidambaram. Image Credit: Wiki

The 2013 Union Budget is sure to make some people very happy and sad at the same time. Angel Investors will now be allowed to create pooled funds and claim “tax pass through,” under the newly notified alternative investment funds regulations, 2012. However, the rich with taxable income above Rs 1 cr, who are usually the angel investors will have to cough up an additional 10 % surcharge for the year.

The Government has asked market regulator SEBI to come up with guidelines for pooled Angel Investment funds to be recognised as alternative investment funds (AIF) under category I, which currently includes Venture Capital Funds, SME funds, Social Venture funds and Infrastructure funds.

Category I AIFs enjoy certain benefits such as exemption from SEBI Insider trading regulation, exemption from lock in post listing of the invested company and tax pass through. Pass through tax means that the fund itself will not be taxed and each partner will pay taxes individually based on their income from the fund.

In May last year, the market regulator notified the Alternative Investment Funds Regulations, 2012 in which funds investing in startups, early stage ventures, social ventures, infrastructures and other sectors which are perceived to have a positive effect on the economy were identified as category I fund.

Finance Minister P Chidambaram also said that small and medium enterprises will be permitted to list on SME exchange without having to make an Initial Public Offer.

The government has also proposed to launch the direct cash transfer scheme called “Aapka Paisa aapke haath.” The cash transfers are likely to be conducted through mobile phones and Aadhaar enabled bank accounts. This will push up technology adoption in rural areas and also promote financial inclusion.

Negatives

  • A surcharge of 10% on persons (other than companies) whose taxable income exceed Rs 1 crore to augment revenues.
  • Increase surcharge from 5 to 10 percent on domestic companies whose taxable income exceed Rs 10 crore.
  • In case of foreign companies who pay a higher rate of corporate tax, surcharge to increase from 2 to 5%  if the taxable income exceeds Rs 10 crore.
  • In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5 to 10 percent.
  • Proposal to increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10 percent to 25 percent.
  • Duty on Set Top Boxes increased from 5 to10 percent.
  • Duty on mobile phones priced at more than  Rs 2000 raised to 6 percent.

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