MEASURES TO ACCELERATE ECONOMIC DEVELOPMENT

Incentives to Venture Capital

It is proposed to insert a new clause (23FA) in Section 10 to provide that any income by way of dividends or long term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking will not be included in computing the total income.

The venture capital fund or the venture capital company would require the approval of the Central Government in accordance with the rules made in this behalf and would also be required to satisfy the prescribed conditions before being able to avail this exemption. Such approval of the Central Government will have effect for the number of assessment years prescribed in the order of approval. However, at one time the approval can be for a maximum number of three assessment years.

The expressions "venture capital fund" has been defined to mean a fund operating under a registered trust deed established to raise moneys by the trustees for the investments mainly by way of acquiring equity shares of a venture capital undertaking in accordance with the prescribed guidelines.

The expression "venture capital undertaking" is being defined to mean a domestic company whose shares are not listed in a recognised Stock Exchange in India. The businesses in which the undertakings may be engaged are software; Information Technology; production of basic drugs in the pharmaceutical sector; bio-technology; agriculture and allied sectors; such other sectors as may be notified by the Central Government in this behalf or production and manufacture of any article or substance for which patent has been granted to the National Research Laboratory or any other scientific research institution approved by the Department of Science and Technology.

As a consequence to the above amendment, it is proposed in insert a sunset clause in the existing section 10 (23F) so that the provisions of this clause which provide exemption in respect of any income by way of dividends or log term capital gains of a venture capital fund or a venture capital company from investments made by way of equity shares in a venture capital undertaking, shall not apply to any investment made after 31st March, 1999. Such investment will qualify for exemption under the newly inserted clause (23FA) in section 10.