I have invested in Alternative Investment Fund II (AIF ii). This AIF fund invests in real estate projects. My question is regarding tax treatment related to income from AIF II. Fund manager is currently deducting tax on gross basis on the income of the fund and not offsetting any expenses or management fees from the income. 

What is going to be the treatment of such income in investors' hand? Can I offset management fees from the interest income of the fund? This management fee is charged by the fund for their services provided against the investment in the fund so I should be able to offset management fee and fund expenses from the income of the fund. Please advise

Also, I want to check with you if i can offset the equalisation amount received with the equalisation amount paid. Currently the fund is not netting equalisation amount and deducting tax on equalisation amount received. Please provide details on tax treatment for AIF II funds. 

Ans: Eligibility for Section 54F
Section 54F provides capital gains exemption when selling assets like stocks.
You must invest the full net sale proceeds in a residential property.
The new flat must be purchased within two years or constructed within three years.
You should not own more than one residential house at the time of sale.
Treatment of Bank Loan Under Section 54F
Exemption applies only to the portion funded by stock sale proceeds.
The bank loan portion is not considered for exemption.
You need to invest the entire net sale proceeds to claim full exemption.
Registration Charges and Stamp Duty
Registration charges and stamp duty qualify as part of the property cost.
These expenses can be included for exemption under Section 54F.
However, only the part paid from capital gains is eligible.
Ensuring Full Exemption
If you reinvest only part of the net sale proceeds, the exemption is partial.
Any remaining capital gain will be taxed.
To avoid tax, the full capital gain amount must be reinvested.
Tax Implications If Conditions Are Not Met
If you sell the new property within three years, the exemption is reversed.
The capital gain becomes taxable in the year of sale.
Ensure compliance with all conditions to retain tax benefits.
Alternative Planning Strategies
If full reinvestment is not possible, consider capital gains bonds.
These bonds provide an alternative exemption under Section 54EC.
This helps in tax-efficient planning while keeping liquidity options open.
Final Insights
Section 54F helps save tax if proceeds are fully reinvested.
The bank loan portion does not qualify for exemption.
Registration costs can be included but only if paid from capital gains.
Ensure compliance to avoid future tax liabilities.
Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in

https://www.youtube.com/@HolisticInvestment