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CBDT Circular: Blow for AIFs

Updated: Jan 18, 2022

The Central Board of Direct Taxes (CBDT) has issued a circular on July 28, 2014 providing clarity on taxation of Alternate Investment Funds (AIFs) that are set up as trusts. Currently, only Venture Capital Funds, sub-category of Category I AIF, were entitled to avail the benefits of ‘pass-through’ and other funds which fall under Category I AIF (like Social Venture Funds, Infrastructure Funds and SME Funds), Category II AIF and Category III AIFs are not entitled to the tax pass-through status. Consequently, majority of AIFs are presently structured as trusts and map their identities and beneficial interests of their investors based on the principles laid down in AIG case1 to avail the tax pass-through benefits.

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