The alternative investment industry is unlikely to get taxation relief from the government. On Thursday, the Lok Sabha approved the Finance Bill (No.2) 2019, which proposes higher surcharge on persons earning more than Rs.2 crore.
Tax experts believe that the proposed changes will not only apply to an individual but also HUFs, trusts and association of persons (AOPs). Since AIFs are trusts and its category III variant (which includes long only funds and long short funds) will have to pay tax at marginal rate i.e. 42.7% on gains made. Further, after an investor receives redemption proceeds, he will have to pay capital gains tax.
The Union Finance Minister Nirmala Sitharaman on Thursday stood firm on government’s proposal in the Budget to levy higher surcharges on super-rich individuals. With this, industry’s hope to get taxation relief fades away.
Nalin Moniz, Chief Investment Officer – Alternative Equity, Edelweiss Asset Management said, “The Finance Bill approved in the Lok Sabha does not give relief to FPIs or Category III AIFs and it appears that the policy presented by the honourable Finance Minister in her Budget speech will remain.”
“Now, FPIs and Category III AIFs have a choice of reorganizing as corporates or remaining as a trust and managing their portfolios in a tax-aware manner if they want to minimize the impact of the surcharge,” Moniz added.
Now, the Rajya Sabha will debate on this bill but it cannot make any amendments. After this, the Bill will return to the Lok Sabha, which will send it to the President for his approval.