What budget left out for AIF's

AIF’s  had expected parity on tax rates applicable on interest income distributed by the funds and period of holding to determine long term/short term capital gains.

And were also expecting clarity on taxation on carried interest as well as ‘pass through’ status for CAT III. The proposals to tax potential repayment of debt in the hands of the investors will dampen their spirits and may take them back to the drawing board to structure leverage

AIFs have been seeking tax parity between listed and unlisted entities and recognition of AIF operations under Indian Tax law, especially GST. Under the existing tax framework for Mutual Funds, Portfolio Management Services (PMS), REITs/InvITs, the income is taxed in the hands of investors on a “pass through” basis, at tax rates applicable to such investment funds.

 However, for AIFs, particularly those making public market investments, do not enjoy the pass-through status and gains are taxable at the hands of individual investors. In other words, there is no taxation at the fund level. Funds, therefore, need to rely on other avenues available under the tax laws which are prone to litigation.

Having parity in treatment of securities will increase the capital allocated to investments in new asset creation that generate jobs and boost the economy

In the AIF business model, carried interest and management fee requires right recognition and treatment across laws/regulations. They are opposed to holding our securities at a lower cost, even though carried interest is treated as Capital Gains by the industry and there is no clear directive or order instructing the tax assessment officer. So, there is a need to bring in certainty to this aspect to avoid friction across agencies/regulators. The pass-through character permitted to AIFs should be across incomes, losses and expenses instead of restricting it to only incomes/losses

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