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Financial Planner - Answered on Dec 17, 2020

Asked on - Dec 17, 2020Translate

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: Any income earned by a SEBI registered category I and II AIF, is exempt from tax in the hands of AIF under section 10 (23FBA) of the Act. Such income shall be taxable directly in the hands of investors of the AIF under section 115UB of the Act.

  • Any income distributed by fund is not liable of DDT
  • Any income distributed by fund, TDS of 10% has to be deducted by fund u/s 194 LBB
  • In case of losses, loss will be not be allowed to pass through investor but would be carried forward at AIF level to be set off against income of future years
  • No expense setting off is available
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