A proposal to give leeway to Venture Capital Funds (VCFs) to invest in equity shares of listed companies is being considered by a high-level committee, set up to review the existing regulations on VCFs. The committee is also looking at changes that would be required in the Income Tax Act to factor-in any relaxation in the existing norms.

VCFs registered with SEBI enjoy a tax pass through status under the Income Tax Act. This means any income of a VCF or a Venture Capital Company (VCC) set up to raise funds for investments in a VCU is not included in computing the total income. The exemption is granted subject to the condition that the VCU is a domestic company, whose shares are not listed in a recognized stock exchange in India. In other words, any income- by way of dividends or long-term capital gains of a VCF from investments in equity shares in a VCU- is exempt from tax.