Pre-Budget 2024-25: IVCA pitches for mainstream integration of AIF investments

Finance Minister Nirmala Sitharaman held a pre-Budget consultation meeting in New Delhi today, where the Indian Venture and Alternative Capital Association (IVCA), representing the alternative asset industry, was the sole participant. IVCA proposed ideas to integrate Alternative Investment Fund (AIF) investments into the mainstream and to facilitate the involvement of significant domestic capital pools like insurance and pension funds in funding Infrastructure, credit, start-ups, scale-ups, and growth companies within the AIF industry.

Additionally, IVCA has requested the government to activate the 2022 budget's blended finance announcement through a Fund of Funds model to channel capital into strategies aligned with government priorities.

The alternative asset industry body has urged the government to implement the suggestions put forth by the Expert Committee on PE-VC (Private Equity-Venture Capital), headed by former SEBI chairman Damodaran and initiated by the Department of Economic Affairs (DEA). The committee's report highlighted growth accelerators for the industry.

The IVCA team, headed by Ashley Menezes, partner and COO at ChrysCapital & Chairperson of IVCA, along with Srini Sriniwasan, managing director at Kotak Alternate Asset Managers Limited & vice-chairperson of IVCA, and Rajat Tandon, president of IVCA, shared important industry topics. These topics emphasised the need for a regulatory environment that supports the advancement of the alternative asset industry in India.

IVCA proposed that AIFs should receive tax parity and clarity similar to FPIs (Foreign Portfolio Investment) to reduce tax disputes and improve ease of doing business. Additionally, IVCA recommended initiatives to position India as an asset management hub, akin to the ‘Make in India’ campaign but focused on managing global capital from India.

Regarding Section 56(2)(viib), IVCA suggested expanding exemptions from angel tax in legitimate cases. Furthermore, IVCA proposed that registered Foreign Venture Capital Investors under SEBI Regulations, 2000 should also be included as exempt entities.

“IVCA requested the issuance of a circular to state that the classification of investments as ‘capital assets’ by AIFs shall remain in place and that income from said securities shall not attract GST. Another circular was requested to clarify that gains from the distribution waterfall shall retain the same characteristic as the underlying source of income, such as income from securities or the sale of securities,” the release states.

IVCA has also urged for a review of how control is defined by the CCI. The current perspective that a PE (Private Equity) firm wields "control" over companies because of minority stakes, board seats, information, and veto rights might create misunderstandings about collusion.