AIFs seek tax pass-through to compete with emerging 'new asset class'

The alternative investment fund (AIF) industry is to request the Ministry of Finance for passthrough status or parity on taxation.At present, Category III AIFs - funds that invest in listed as well as unlisted companies, derivatives, and structured products - must pay tax at the fund level, leading to effective rates as high as 39% for those in the high-income bracket.The AIF industry is concerned that if the soon-to-be-rolled-out new asset class gets MF-like tax treatment, it will distort the competitive landscape. Termed ‘Investment Strategies’, the product design for the new asset class is in line with some Category III AIFs but comes with a low investment barrier of just INR 10 lakh, as opposed to INR 1 crore for AIFs.