Incentives for Category II Alternative Investment Fund (AIF)

The existing provisions of the said section 56 of the Income-tax Act,  inter alia, provide that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be charged to tax. However, exemption from this provision has been provided for the consideration for issue of shares received by a venture capital undertaking from a venture capital company or a venture capital fund or by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Currently the benefit of exemption is available to Category I AIF. With a view to facilitate venture capital undertakings to receive funds from Category II AIF, it is proposed to amend the said section to extend this exemption to fund received by venture capital undertakings from Category II AIF as well.

This amendment will take effect, from 1st April, 2020 and will, accordingly, apply in relation to the assessment year 2020-21 and subsequent assessment years.

[Clause 21]

 

 

 

Exemption on share premium from category two AIF extended to venture capital undertakings, permitting tax-free receipt of funds. The amendment extends the exemption from taxation of excess consideration on issue of shares so that venture capital undertakings receiving funds from Category II Alternative Investment Funds will not have the excess over fair market value charged as income, thereby aligning Category II AIF receipts with existing exemptions available to Category I AIFs and notified classes of persons.