Govt may lower long-term capital gain tax for unlisted companies

New Delhi: Government Saturday hinted at lowering the long-term capital gain tax on investments made in unlisted firms, particularly startups, in the Budget for the next financial year, to bring them closer to the levels prevalent for the listed companies.

Speaking at Start Up India conference, Revenue Secretary Hasmukh Adhia said a long-term capital gain tax of 20 percent is levied on a three-year investment in an unlisted company, but holding of equity shares of a listed firm for one year is exempt from any such levy.

"Now this gap is too wide... I can assure you of this gap being bridged at the time of Budget," he said.

Adhia said some other tax incentives to encourage startup ecosystem, like rationalising Service Tax rules, are also likely to be announced in Budget, to be presented on February 29.

A strong pitch for removing the differential treatment of taxing long-term gains in listed and unlisted companies have been made, he said.

"The point is, if somebody is making hot investment in equity market, if he keeps it for one year, after one year there is zero capital gain. As compared to that people who have been taking the risk of putting long-term equity investment in unlisted security, like in case of a startup, they have to pay 20 per cent even after 3 years," Adhia said.

Speaking at the same event, Economic Affairs Secretary Shaktikanta Das said the Finance Ministry has held detailed discussion with the Reserve Bank over online filing of returns under FEMA.

"You will see very quick action on that which will facilitate online filing of returns," Das said.

He said interest rates in India will be comparable to those prevalent in countries like the US and Japan when inflation rate falls to their levels on a consistent basis.

Sebi Member Prashant Saran said the markets regulator has been been "very proactive" to encourage startups. He said startups were welcome to approach the regulator with suggestions adding "none of our regulations are written down on stone."

On ways to improve regulations for startups, Corporate Affairs Secretary Tapan Ray said efficiency in registration is very important and in the next couple of months it will take only 24 hours to register a company.

"As of now there is some complaint that it takes a long time to register companies, so we are going through an action plan to revise the rules... remove rules which are irrelevant for startups," Ray said.

He further said, keeping the startups in mind, a committee has been set up to suggest amendments to Company Laws with regards to managerial remuneration, insider trading norms and private placements.

When asked how easy it is for a new age company to come and list in India, Sebi member Saran said stock exchanges have a startup platform, which is called Institutional Trading Platform for which we have done away with detailed object clause which is required in an IPO document.

Economic Affairs Secretary said that the 'Start Up' programme is a real game changer and will bring in investment and facilitate huge amount of job creation.

Referring to starting a company in India as a "Chakravyuh", Das said "it is easier to get in than to get out". He said the Bankruptcy and Insolvency law will create a vibrant credit market in India and provide an exit option to entrepreneurs.