Foreign investment in Indian high-tech start-ups can yield significant profit opportunities for savvy investors. During 2018, over 1,000 deals were struck, reflecting $38.3 billion in new investments. If these investments turn out to be profitable, the tax exposure for the investor will vary with the form of the investment. Choices of investment vehicles include (i) L.L.P.’s, (ii) Category I, Subcategory I alternative investment funds (“A.I.F.’s”) registered with the Securities Exchange Board, (iii) Category III A.I.F.’s, and (iv) trusts. Each has unique tax consequences for investors receiving dividends and realizing gains. Raghu Marwah and Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, explain the entities choices and the resulting tax costs.

India’s recent Finance Act addressed a tax planning device intended to reduce or eliminate the imposition of the Dividend Distribution Tax ("D.D.T") that applies when a corporation exercises the right to distribute dividends to shareholders. The statue targets plans involving an amalgamation between a profitable company and a loss company and prevents the reduction of earnings when the profitable company is the acquiring company. Does this mean that earnings can be reduced when the loss company is the acquiring company? Differing views have been expressed by Indian tax advisers. CA Anjali Kukreja of R.N. Marwah & Co L.L.P., New Delhi, examines both views and explains why one view is technically preferable.

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