prpri Section 115UB– Taxation of income of Investment funds- Clarity required on taxation of Category III AIF Section 115UB– Taxation of income of Investment funds- Clarity required on taxation of Category III AIF

Section 115UB– Taxation of income of Investment funds- Clarity required on taxation of Category III AIF

Issue/Justification

Several Category I and II Alternative Investment Funds (AIFs) are registered with SEBI. With effect from Financial Year (FY) 2015-16, the tax ability of the income earned by AIFs is governed by a special tax regime as provided under Section 115UB of the Income tax Act, 1961 (the Act), which is summarized as follows:

  • Any income (other than business income) earned by a SEBI registered Category I and II AIF, is exempt from tax in the hands of the AIF under Section 10(23FBA) of the Act. Such income shall be taxable directly in the hands of the investors of the AIF under Section 115UB of the Act.
  • The investors shall be chargeable to tax in the same manner as if it were the income accruing or arising to, or received by, such investor had the investments, made by the AIF, been made directly by such investor. Income taxable in investors’ hands shall be deemed to be of the same nature and proportion as in the hands of the AIF.
  • Further, in terms of Section 115UB(2) of the Act, in case there is a loss at the fund level (i.e. current loss or loss which remained to be set off), such loss shall not be allowed to be passed through to the investors but would be carried forward at AIF level to be set off against income of future years in accordance with the provisions of Chapter VI of the Act.

While the said section provides methodology of taxing of AIF Category I and II, however, it is silent regarding the tax-ability of AIF category III.

Suggestion

It is suggested that clarity may be provided on taxation of Category III AIF under section 115UB.

Source-  ICAI Pre- Budget Memorandum–2018 (Direct Taxes and International Tax)

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6 Comments

  1. Pinaki Mukherjee says:

    I too am in a similar position. I have been asking the AIF Fund House for clarity which they are not giving. Even in the Form 64C issued by them to me, they have not smartly disclosed the short term capital loss of the earlier year (2017/18) although the prescribed format for Form 64 C requires the same. Please call me at 9831173675

  2. Dipti Sharma says:

    I am.also looking for an answer the above query, experts please advice where in the ITR is the carried forward loss to be shown

  3. jupudy says:

    Please advise how to report the accumulated losses of a AIF (category II) which are passed on to unit holder of fund, as on 31 March 2019, by the FUND consequent to the amendment made in Budget 2019 on PASS THROUGH LOSS .
    In ITR II ,the schedule on PASS THROUGH INVESTMENT ( PTI ) . there is a column for indicating current year losses and we can not report the earlier losses in this column .My FUND has informed me that there is cumulative short term capital loss which can be used to set off of the current year capital gains of fy 2019-20.
    I feel one can not show the accumulated losses of earlier years in PTI schedule nor it is
    correct to show under CFL schedule for the relevant previous years during which period losses occurred.. The entries entered in CFL schedule will be actual figures reported in ITR s filed for that year.
    We can not file revised ITRs for taking the benefit of carry forward losses now passed on,
    as the amendment on this came into effect from 1 st April 2020.
    Please advise whether any of my views are incorrect and advise how to take benefit of the
    losses of previous years for set off in the current assessment year.

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