In a big boost to the private equity segment,the government on Monday cut the long-term capital gain tax from 20 per cent to 10 per cent on investments made by private equity funds into shares of unlisted companies.
To promote further depth of the capital markets through listing of companies,the government also exempted long-term capital gains tax on sale of unlisted securities in initial public offerings (IPO). However,it has proposed to levy a 0.2 per cent security transaction tax on the sale of unlisted securities. In order to give parity to such (private equity) investors,I propose to reduce the rate in their case from 20 per cent to 10 per cent on the same lines as applicable to FIIs, Finance Minister Pranab Mukherjee said in a debate on Finance Bill,2012,in the Lok Sabha. Long-term capital gains arising from sale of unlisted securities in the case of foreign institutional investors (FIIs) are taxed at the rate of 10 per cent,while other non-resident investors,including PE investors,are taxed at the rate of 20 per cent.
After the presentation of Budget,several PE investors had appealed to the Finance Ministry to bring them the tax rate on par with the FIIs. For listed securities,however,there is no tax on long-term capital gains. Private equity firms made investments worth $10.11 billion in India during 2011,taking their total investment over the past five years to about $47 billion,says a report by research firm Venture Intelligences. In 2011,there were 441 deals,compared to $8.1 billion through 362 deals in the previous year.