Search the Internet           Tips

India approves overseas venture fund, tax break

India's market regulator said on Monday it has approved India's first overseas venture capital fund, '2 i Capital', to invest in the country and predicted it could mark the beginning of a boom in the arrival of such funds.

"We have given them in principle approval. They have committed to bring in $125 million," D R Mehta, chairman, Securities and Exchange Board of India told reporters on the sidelines of a seminar on venture capital funding.

Mehta said the US-based fund would invest in India through Mauritius.

"My estimate is that we could get another half a billion dollars in investments from overseas venture capital funds," he said.

He said 31 venture capital funds had received SEBI's approval up to now with a total investible pool of Rs 17.98 billion.

All of them were constituted in India but some had overseas subscriptions as well, he said.

India's software industry association said last month it saw India attracting annual investments of over $10 billion by 2008, making the country one of the top five global locations for the creation of technology ventures.

Key tax break in December

Mehta also said SEBI would scrap a key tax curb later this month that had discouraged venture capitalists eager to fund India's technology sector.

The government last month abolished a rule that denied a key tax exemption to venture capital funds which did not exit from companies in which they invested within 12 months of the firm going public.

Mehta said SEBI's board would meet on December 27 to approve the change.

SEBI regulates India's venture capital fund industry.

Earlier this year, the government allowed so-called "pass-through" status for venture funds under which a fund would not be taxed. Instead, only investors in the fund would be taxed.

However, this tax exemption was allowed to venture capital funds only if they exited from a company by selling out their stakes within 12 months of it going public.

"We (SEBI) are not going to say when they (venture funds) should exit from a company anymore," Mehta said.

Venture capital funds normally only invest in small privately-held companies. The abundance of skills and a growing entrepreneurial culture in India are expected to set the ground for a big push to venture capital funding.

Back to top

(c) Copyright 2000 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Tell us what you think of this report