Private Equity

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PE industry players rue GST on fund management fees

Business Line  

The domestic private equity industry is keen that the government ensures a level-playing field between the locally set up PE funds and those established abroad on the taxation front. The existing 18% GST on ‘fund management fees' of PE funds continues to be a “big tax friction” affecting the onshoring of fund management activity in India, it is felt. While management fees charged to a VC/PE fund located in an offshore jurisdiction are exempt from GST, those charged to an onshore fund located in India attract 18% GST. The main thorny issue in this GST levy is that no input tax credit is available for the India domiciled fund, which has to fork out the GST. Since an Alternate Investment Fund (AIF) is only a pooling vehicle for investments and does not provide any service, there is no output GST liability, and it is not able to utilize input tax credit of GST. Thus, this incremental GST outgo becomes an additional cost for the investors in the AIF and acts as an impediment to onshoring of funds into India via AIFs.