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Can Indian businesses deduct expenses from income? That would solve the investment tax problem.

They can, but that hurts if you make any real revenue. If I invest $100 in a business, it spends the $100 but makes $60 as revenue, then the $40 is a loss. (And can be offset by profits in future years)

With this new clause, the calculation will be: income = $100 (investment) + $60 (revenue) = $160. Expenses = $100, profit = $60, and you'll pay tax.

It's like taking a loan from the bank and being taxed on the money as income. You still have to pay the whole thing back! (Effectively, any equity investment is a "liability" on the books; any investor will demand return on his whole investment, not just the portion that wasn't paid as tax)

If the investor is entitled to return, the investment amount is not in excess of the share value, and hence there is no income. If revenue is spent on growth expenses, there is no income.

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