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Alternative investment funds: PE-VCs look for clarity on taxation

Chennai, Nov 26, 2022

The private equity-venture capital (PE-VC) industry is hoping for changes in the taxation of the alternative investment fund (AIF) business model and requesting for a harmonised framework for the asset class to help avoid legal challenges that it is currently exposed to.

In their meeting with the FM Nirmala Sitharaman, representatives of the Indian Venture and Alternate Capital Association (IVCA), requested her for separate legal forms and recognition for AIFs and their operations. "Two critical aspects of the AIF business model - carried interest and management fee - requires right recognition and treatment across laws/regulations," IVCA's note to the FM said. There has been uncertainty in the treatment of carried interest for the purpose of taxation as the term is not defined.

Further, the industry body requested that pass-through character permitted to AIFs should be across incomes, losses and expenses instead of restricting it to only incomes/losses. "We (AIFs) are perhaps the only asset class where expenses are not tax deductible, and it is fair to re-evaluate that," Gopal Srinivasan, founder, TVS Capital and senior board member, IVCA, told TOI.

Keeping in mind the long-term approach held by institutional investors, the industry has also requested the FM to allow operation of perpetual funds. The industry also continues to seek parity in taxation of listed and unlisted securities to remove "disincentive" for investors in supporting private firms.

[The Times of India]