Worried about competition from the "new asset class," the alternative investment fund (AIF) industry plans 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 percent for those in the high-income bracket.
On the other hand, mutual fund (MF) investments are taxed in the hands of the investor, giving them a competitive advantage.
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 for the ₹5 trillion industry.
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