252 lines
11 KiB
PHP
252 lines
11 KiB
PHP
@extends('Frontend.layouts.master')
|
||
@section('content')
|
||
|
||
<!--add html content-->
|
||
|
||
<div class="inner-banner">
|
||
<div class="container">
|
||
<div class="banner-content">
|
||
<div>
|
||
<h2>Blogs</h2>
|
||
<!--<p>India’s First Secondary Transactions<br> Platform for Alternative Assets. </p>-->
|
||
</div>
|
||
<img src="{{imagePath('public/assets/media/FrontendImages/menu-logo.png')}}">
|
||
</div>
|
||
</div>
|
||
</div>
|
||
|
||
<div class="blog-container">
|
||
<div class="container">
|
||
<h4 class="fw-semibold">Taxation of Alternative Investment Funds: An Investor's Guide</h4>
|
||
<p class="mb-2">
|
||
Alternative Investment Funds (AIFs) are a relatively new category of investment funds in India,
|
||
regulated by the Securities and Exchange Board of India (SEBI). AIFs are a type of privately pooled
|
||
investment vehicle that invests in assets other than traditional securities such as stocks, bonds, and
|
||
money market instruments.
|
||
These funds are designed for sophisticated investors who are willing to
|
||
take on higher risk and potentially earn higher returns than traditional investments.
|
||
</p>
|
||
<p class="mb-1">
|
||
AIFs are classified into three categories based on their investment strategies and risk profiles:
|
||
</p>
|
||
<ul class="mb-2">
|
||
<li class="mb-1">
|
||
<strong>Category I AIFs:</strong>
|
||
AIF that invest in early-stage start-ups, SMEs, and social ventures that the
|
||
government or regulators consider socially or economically desirable.
|
||
</li>
|
||
<li class="mb-1">
|
||
<strong>Category II AIFs:</strong>
|
||
These funds invest in private equity, debt or other securities of companies,
|
||
asset securitization or any other structure as permitted under SEBI regulations. Category II AIF
|
||
are AIFs which does not fall in Category I and III and which do not undertake leverage or
|
||
borrowing other than to meet day-to-day operational requirements.
|
||
</li>
|
||
<li class="mb-1">
|
||
<strong>Category III AIFs: </strong>
|
||
These funds use complex trading strategies such as leverage, short-selling,
|
||
and derivatives to generate high returns.
|
||
</li>
|
||
</ul>
|
||
|
||
<h5 class="fw-semibold">Taxation of Category I and Category II AIF</h5>
|
||
<p>
|
||
When it comes to taxation, Category I and II AIFs have a
|
||
pass-through status
|
||
. This means that any
|
||
income (except for business income) that the fund generates, is taxed to the investor and not to the
|
||
fund house - even if the investor has not redeemed the investment. T
|
||
he investors need to pay taxes
|
||
according to their respective tax slabs.
|
||
</p>
|
||
<div class="taxation">
|
||
<table class="mt-3 w-100">
|
||
<tbody>
|
||
<tr>
|
||
<th>Nature of Income earned by the Fund</th>
|
||
<th>Taxability</th>
|
||
<th>Tax Rate</th>
|
||
</tr>
|
||
<tr class="bg-white">
|
||
<td>Other than business income ( For example capital gains )</td>
|
||
<td>Passed through - AIF does not pay any tax. The unit holder pays the tax</td>
|
||
<td>Rates applicable to the unit holder</td>
|
||
</tr>
|
||
<tr>
|
||
<td>Business Income</td>
|
||
<td>Taxed at AIF. Such income is not taxable for unit holders</td>
|
||
<td>
|
||
AIF was formed as a company or LLP. Taxed at the rates applicable to the company or the LLP. <br><br>
|
||
AIF formed as Trust: Taxed at Maximum Marginal Rate*.
|
||
</td>
|
||
</tr>
|
||
</tbody>
|
||
</table>
|
||
<p>*Maximum Marginal Rate for business income as per the latest tax rates enacted as of 2020 is 42.744%.</p>
|
||
</div>
|
||
|
||
<p>
|
||
Therefore, if you invest in category I and II AIF, you need to pay capital gain tax on the profit or loss
|
||
you make from the AIF funds within a given duration. The duration here is important to understand
|
||
whether long-term capital gain tax or short-term capital gain tax would be applied. As per the
|
||
recent rules for LTCG, 20% is the rate of tax with indexation benefit. If the profits are taxed as STCG,
|
||
then the rate would be 15%. There is a surcharge, and cess charges on and above-mentioned tax
|
||
rates as well. Additionally, in case of
|
||
non-resident
|
||
investors beneficial tax rate of 10% is provided
|
||
for the long-term capital gains arising on transfer of unlisted securities or shares of a company not
|
||
being a company in which the public are substantially interested subject to the condition that the
|
||
indexation and foreign exchange fluctuation benefits would not be available.
|
||
</p>
|
||
|
||
<p>
|
||
The CBDT has provided a clarification vide circular dated 3 July 2019 that any
|
||
<strong>income in the
|
||
hands of a non-resident investor from offshore investments </strong>
|
||
routed through the Category I or
|
||
Category II AIF, being a deemed direct investment outside India by the non-resident investor, is not
|
||
taxable in India under the provisions of the ITA. The CBDT further clarifies that loss arising from
|
||
the offshore investment relating to non-resident investor, being an exempt loss, shall not be
|
||
allowed to be set-off or carried-forward and set off against the income of the Category I or Category
|
||
II AIF.
|
||
</p>
|
||
|
||
<p>
|
||
<strong>
|
||
Section
|
||
194LBB
|
||
-
|
||
Tax
|
||
deducted
|
||
at
|
||
Source
|
||
on
|
||
Income
|
||
(other
|
||
than
|
||
business
|
||
income)
|
||
distributed by Category I and II AIF:
|
||
|
||
</strong>
|
||
</p>
|
||
|
||
<div class="taxation">
|
||
<table class="mt-3 w-100">
|
||
<tbody>
|
||
<tr>
|
||
<th>Investor Type</th>
|
||
<th>Withholding Tax Rate</th>
|
||
</tr>
|
||
<tr class="bg-white">
|
||
<td>Resident</td>
|
||
<td>10%</td>
|
||
</tr>
|
||
<tr>
|
||
<td>Non-Resident </td>
|
||
<td>
|
||
Rates in Force
|
||
as specified in the Finance Act of the relevant year (Currently 30%)
|
||
or rates specified in the applicable Double Tax Avoidance Agreement
|
||
(DTAA) entered between India and the country of residence of such
|
||
non-resident investor
|
||
</td>
|
||
</tr>
|
||
</tbody>
|
||
</table>
|
||
<p>Investors are entitled to claim credit of taxes so withheld by the Investment Fund in their respective returns of income which are to be filed under the ITA.</p>
|
||
</div>
|
||
|
||
<h5 class="fw-semibold">Taxation of Category III AIF</h5>
|
||
<p>
|
||
Unlike Category I and II, there is no pass-through status for Category III. This category is taxable at
|
||
the fund level.
|
||
Category III AIFs are taxable at the highest
|
||
income tax slab
|
||
level (42.7%) at the fund
|
||
level. The returns given to investors are after deducting the tax. The tax rates applicable to the AIF is
|
||
as follows.
|
||
</p>
|
||
|
||
<div class="taxation">
|
||
<table class="mt-3 mb-3 w-100">
|
||
<tbody>
|
||
<tr>
|
||
<th>Tax type</th>
|
||
<th>Short-Term Capital Gains</th>
|
||
<th>Long-Term Capital Gains</th>
|
||
<th>Business Income</th>
|
||
<th>Dividend Income</th>
|
||
</tr>
|
||
<tr class="bg-white">
|
||
<td>Basic tax</td>
|
||
<td>15%</td>
|
||
<td>10%</td>
|
||
<td>30%</td>
|
||
<td>30%</td>
|
||
</tr>
|
||
<tr>
|
||
<td>Surcharge</td>
|
||
<td>15%</td>
|
||
<td>15%</td>
|
||
<td>37%</td>
|
||
<td>37%</td>
|
||
</tr>
|
||
<tr class="bg-white">
|
||
<td>Education Cess</td>
|
||
<td>4% </td>
|
||
<td>4% </td>
|
||
<td>4% </td>
|
||
<td>4% </td>
|
||
</tr>
|
||
<tr>
|
||
<td>MMR</td>
|
||
<td>17.94%</td>
|
||
<td>11.96%</td>
|
||
<td>42.74%</td>
|
||
<td>42.74%</td>
|
||
</tr>
|
||
|
||
</tbody>
|
||
</table>
|
||
</div>
|
||
|
||
<h5 class="fw-semibold">Taxation of Secondary Transfer of AIF units by investors</h5>
|
||
<p>
|
||
When an investor exits an AIF by a transfer of units or partnership interests to another investor
|
||
(this transaction is called a
|
||
‘secondary transfer’
|
||
), gains on sale of units may be taxable directly in
|
||
the hands of the investors. The taxability will depend on the holding period of AIF units.
|
||
</p>
|
||
|
||
<div class="taxation">
|
||
<table class="mt-3 w-100">
|
||
<tbody>
|
||
<tr>
|
||
<th>Instrument </th>
|
||
<th>Period Holding </th>
|
||
<th>Type of Gain</th>
|
||
<th>Tax Rate</th>
|
||
</tr>
|
||
<tr class="bg-white">
|
||
<td class="border-bottom-0">Units of AIF</td>
|
||
<td>Up to 36 Months </td>
|
||
<td>Short Term Capital Gain </td>
|
||
<td>Slab Rates</td>
|
||
</tr>
|
||
<tr>
|
||
<td class="border-0 bg-white"></td>
|
||
<td>More than 36 Months </td>
|
||
<td>Long Term Capital Gain </td>
|
||
<td>20% with Indexation</td>
|
||
</tr>
|
||
|
||
</tbody>
|
||
</table>
|
||
</div>
|
||
|
||
</div>
|
||
</div>
|
||
|
||
@endsection |