Angel investors too now come under a regulator. Budget 2013 specifies that Securities and Exchange Board of India (SEBI) would "register angel investors under 'category I AIF' (Alternative Investment Fund Regulations) which has tax pass through status". Essentially angel investors will now be recognized, registered and regulated by SEBI.
But do a bunch of angel investors, essentially affluent individuals using their own funds to provide capital for business start-ups, need a regulator at all? Mahendra Swarup, President, Indian Venture Capital Association, feels that this will dampen the angel investing ecosystem.
For the 'tax pass through status' the fund is not taxed but the end investors are. Even as the distinction between pooled and individual angel investments is missing, 'tax pass through status' is a constructive measure as this removes ambiguity and avoids double taxation.
Punit Shah, Co-Head, Tax, KPMG India says it's a positive move for investors. However, why the 'tax pass through status' was not translated to all investment categories remains the big question. As per the AIF guidelines introduced in 2012, the pass-through was only given to AIF Category I and the investor community has been lobbying to extend it to all categories.