Surcharge may still apply to AIFs

According to SEBI data there are 599 registered AIFs in the country as on July 31.  

Alternative Investment Funds (AIFs), especially those falling under Category III segment, are feeling left out after Friday’s announcement by the government that was aimed at, among other things, reviving foreign investors’ interest in the Indian capital markets.

On Friday, Finance Minister Nirmala Sitharaman said that the surcharge that was announced in the Union Budget would not be applicable on foreign portfolio investors (FPIs) but made no mention of AIFs, many of whom are also structured as trusts and so would be subjected to the surcharge.

This assumes significance as AIF Category III entities include long/short funds or hedge funds with many such funds dealing significantly in derivatives as well.

“AIF Category III has been left out from yesterday’s [Friday’s] announcement as it has been specifically made in the context of FPIs,” said Padmanabh Sinha, chairman, Indian Private Equity & Venture Capital Association (IVCA), an industry body of private equity and venture capital firms.

“There is no reason domestic funds should be disincentivised against foreign funds.

‘Clarity needed’

“There are a few, growing AIF III long/short funds that deal in derivatives and it would really be helpful if the government clarifies whether the gains of such AIF category III entities would also be free of surcharge,” added Mr. Sinha.

Industry players had met policymakers post the Budget to put across their concerns related to higher tax outgo. While highlighting the fact that Category III funds — since they are perceived as hot money — do not get many benefits that Category I and II funds do and hence the added tax liability would only make the business environment more difficult.

As per data from the Securities and Exchange Board of India , there were a total of 599 registered AIFs in the country as on July 31.

There were close to 9,400 registered FPIs as on July 31.

“The removal of higher surcharge on capital gains will not apply to AIFs which deal in derivative securities where the characterisation of income is business income,” said Bhavin Shah, partner & leader, Financial Services Tax, PwC India

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Printable version | Oct 28, 2021 2:54:57 PM |

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