They are big financiers of the India story, but GST is making them nervous.

NEW DELHI: Indian venture capitalists and private equity firms that pumped $15 billion into companies in 2016 are wary that come July, when the goods and services tax (GST) rolls out, their representatives/directors could be vulnerable to tax dues of investee companies even retrospectively.

The new law gives tax authorities the right to extract the full claim with interest and penalties from these directors exposing their personal assets and property to the risk of confiscation. This can happen only if it is proven that the non-recovery is attributed to gross neglect, misfeasance or breach of duty by the directors.

For instance, if company A, in which a fund Y invested in March 2016 and appointed a nominee on its board, were to receive a notice from the tax authorities in August this year for an unpaid claim pertaining to the financial year 2015, the nominee directors of fund Y are liable to satisfy the claim amounts if the company is unable. Otherwise the directors have to prove that they were not guilty of negligence, misfeasance or breach of duty.

These provisions incorporated in Section 89 of the Central Goods and Services Tax Act have the industry divided over its interpretation with some experts saying it does not clearly classify which category of directors would be liable. Others say that they contain only minor variations from previous laws and can be defended in court if punitive actions were to be imposed.

“This is a very draconian provision buried in an otherwise very welcome legislation and very retrograde for the ease of doing business objective of the government,” Avinash Bajaj, managing director of Matrix Partners, which manages $600 million in a combination of venture capital investments, said. Matrix Partners funded companies such as cab-hailing app Ola, online classifieds platform Quikr and Treebo Hotels among a dozen other investments in India.

http://economictimes.indiatimes.com/news/economy/policy/vcs-pes-fear-taxing-times-for-directors-under-gst/articleshow/58368618.cms