AIF means any fund integrated, which is a privately pooled funding car that collects funds from refined traders, for investing it following an outlined funding coverage for the good thing about its traders. These are ruled by the SEBI (Various Funding Funds) Laws, 2012. There are three classes of AIFs.
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Class I
Enterprise capital funds, Angel Funds, SME Funds, Social Enterprise Funds, Infrastructure funds.
Class II
AIFs that don’t fall beneath Class I & III, and which don’t undertake leverage or borrowing like actual property funds, personal fairness funds, debt funds, and many others.
Class III
AIFs which make use of advanced buying and selling methods or using leverage like derivatives reminiscent of hedge funds, PIPE Funds, and many others.
Taxation
Class I & II AIFs have been given a pass-through standing u/s 115UB. This implies any earnings (aside from enterprise earnings) earned by the AIF is tax-exempted u/s 10(23FBA). Since enterprise earnings is taxable within the arms of AIF, it’s exempted for the unit holders u/s 10(23FBB). So, for the investor, any earnings from investments made in such AIFs, are chargeable to tax because it had been the earnings arising to such particular person, had the investments made straight by him. For Class III AIFs, the tax legal responsibility is predicated on the relevant charges akin to their structure and the character of the earnings; they don’t have a pass-through standing. A particular tax framework doesn’t exist for Class III AIFs.
Modification in Finances 2025
The definition of “capital asset” u/s 2(14) was amended to incorporate securities held by AIFs of Class I & II. This ensures that earnings arising out of transfers of such securities invested in AIFs are all the time handled as capital features. So, successfully, there isn’t a change. The modification clarified the standing as capital asset for AIF Class I & II.
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