VC funds in clean technology may get tax exemption

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New Delhi: The government of India is looking to consider a proposal to tax exemptions to venture capital funds investing in energy-efficient technologies, for attracting more investment in this segment, reported mint. An income tax exemption for energy service companies (Escos) is also being considered by the government. It would provide solutions for improved energy efficiency in buildings, utilities and offices and whose profits are directly tied to the savings achieved; a reduction in VAT, or value-added tax, for compact fluorescent lamps (CFLs) as well as tax incentives for more energy-efficient appliances. The proposal has its relevance as there is a sharp drop in international oil prices to less than $50 (Rs2, 365) per barrel, which typically acts as a disincentive to invest in alternative energy. India is the eighth largest producer of greenhouse gas. These new breaks are being proposed by the ministry of power under the National Mission for Enhanced Energy Efficiency as part of the country's strategy to reduce greenhouse gas emissions. These are also a part of the national action plan announced by Prime Minister Manmohan Sinhgh's council on climate change on 30 June. Cleantech Group, a U.S.-based clean-technology company estimates that venture capital and private equity investment in clean technology in India more than doubled between 2006 and 2007. Investors committed $290 million in 11 clean-tech investment deals, compared with $140 million in nine deals in 2006. Most VCs invested in recycling and waste management energy generation and improving energy efficiencies. While the India investments are similar to the ones made in China in the same period, they are sharply below the $1.33 billion in Europe and $3.65 billion invested in the U.S. in the same year. "Any exemption always helps. But more than I-T (exemption,) the government could play a role in providing funds to entrepreneurs. Currently VCs call the shots and give innovators a lower evaluation. It would be great if the government involved itself in providing seed money," said Shashikanth Suryanarayanan, a Professor at Indian Institute of Technology, Bombay, and a Founder and Director of Sedemac. The head of a venture capital fund floated by an Indian entity opined that tax concessions are unlikely to attract investments in energy service companies. "About 90 percent of the pool of venture capital funds in India originates in North America and is routed through Mauritius. Tax is therefore not an issue because of India's tax treaty with Mauritius. Funds are mostly returns-oriented," he added.