This provision in a way is like loss-stripping provisions contained in Section 94 of the Act and is designed to discourage trading losses or misuse of losses for transfer of purchases of units by a loss-incurring investor. However, this benefit was restricted for unitholders which held the units of the AIF for a period of at least 12 months. The Finance Act 2019 allowed pass-through of net capital losses to unitholders for Category I and II AIFs.

Loss Suffered by Unitholders in Case of Inheritance

This would be of relevance to AIF III funds investing in the international stock exchanges, because those investing on domestic exchanges are required to register as FPIs, and, as mentioned above, Category I FPIs are outside the purview of these provisions. To bring parity for AIFs in GIFT, it should also be clarified that the indirect transfer provisions are not applicable for nonresident investors, directly or indirectly, in Category III AIFs located in the GIFT IFSC. Nonresident investors investing in Category I or II AIFs in India or Category I Foreign Portfolio Investors (FPIs) are outside the purview of indirect transfer provisions. If an investor in the GIFT AIF is a feeder fund, then the investor in that feeder fund could be exposed to tax as a result of indirect transfer provisions. Application of Indirect Transfer Provisions to Category III AIFs located in the GIFT IFSCĪccording to Section 9(1)(i) of the Income Tax Act, 1961 (the Act), transfer of shares or interest in an offshore company which derives its value, whether directly or indirectly, substantially from assets located in India will be subject to indirect transfer provisions in India.Ĭategory III AIFs in the Gujarat International Finance Tec-City (GIFT) International Financial Services Center (IFSC) are taxed at the fund level and investors are exempted from tax on income from the Category III AIF.

This article focuses on the “last mile” finishing touches required in the short term for the industry. In the recent past, Indian tax authorities and regulators have responded swiftly to the needs of the alternative investment fund (AIF) industry, and they have carried out significant changes with far-reaching impacts to remove hurdles faced by the industry and different investor classes.ĭue to the dynamic nature of the AIF industry, rules and policies need to be updated all the time.

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