The Indian government’s recent clarification on the taxation of asset sales by domestic venture capital investors aims to reduce litigation and provide tax clarity. Previously, domestic alternative investment funds (AIFs) faced higher income tax rates as proceeds from asset sales were considered business income, unlike foreign investors who benefited from capital gains tax. The proposed changes will align the tax treatment for domestic and foreign investors, applying a 12.5% capital gains tax instead of the previous 30% or higher for business income. This move is expected to accelerate exits and resolve long-standing disputes between taxpayers and tax authorities.