In its budget proposal, AMFI has requested the finance minister Nirmala Sitharaman to accord pass through status to Category III AIFs.
AMFI said, “With the recent increase in surcharge tax rates proposed in Finance Budget 2019, it becomes imperative to extend “pass-through” status for AIF CAT III funds as the AIF funds are pooled investment vehicles consisting of investors of varied taxable income slabs. In a subsequent amendment, the government corrected the unintended consequence of tax surcharge applied to FPIs. However, the aforesaid amendment did not include domestic trusts such as CAT III AIF in its scope and thus the investors of CAT III AIF still have to bear a higher tax incidence compared to the other investors in similar product category.”
Pass through status means that income accruing from such funds is taxed at the investor level and not the fund level. Currently, category III investors have to pay tax twice – at fund level and individual level.
In India, the Category I and Category II AIFs have pass through status.