Summary of Income-tax Implications | Domestic Fund v.

IFSC Fund

Domestic Fund (regarded as Domestic Fund (regarded IFSC Fund (regarded as IFSC Fund (regarded as
Particulars
Category I / II AIF) as Category III AIF) Category I / II AIF) Category III AIF)
Tax implications for the Fund
Taxable at applicable rates
depending upon the income
stream earned by IFSC
Fund
Taxable at applicable rates
NIL; only business income Same as Domestic Fund However, certain income
Taxability in depending upon the income
taxable at Fund level (regarded as Category I / exempt in case of IFSC
India for AIF stream earned by Domestic
[section 10(23FBA)] II AIF) Fund whose all the unit
AIF
holders other than sponsor /
manager are non-residents
[Please refer Table 1 for
details of exempt income]
AIF required to withhold tax at
‘rates in force’
Withholding tax In case of resident investors - @
by AIF as per 10% Same as Domestic Fund
Indian tax laws In case of non-resident investors (regarded as Category I / NIL
on distribution to - as per Income-tax Act or NIL II AIF)
investors applicable DTAA, whichever is
beneficial
[section 194LBB]
Filing of income- Required (Fund will be Required (Fund will be
tax return in treated as resident of India treated as resident of India
Required Required
India by the from income-tax from income-tax
Fund perspective) perspective)
Tax implications for resident investors
Distribution from AIF taxable in
same and like manner as if
Taxability in
investor had made direct
India for Same as Domestic Fund
investment in investee Distribution from AIF not Distribution from AIF not
resident (regarded as Category I /
companies – tax deducted by taxable taxable
investors of II AIF)
AIF available as credit
the Fund
Business income not taxable for
investors
 Filing of Required Required (if investors have Required Required (if investors have
income-tax other taxable income) other taxable income)
return in India
by resident
investors of
the Fund
Tax implications for non-resident investors
Taxability in
India for non- No further income-tax payable – Same as Domestic Fund
resident tax withheld by Fund is the final NIL (regarded as Category I / NIL
investors of tax liability II AIF)
the Fund
Filing of
income-tax
return in India
by non-
resident
investors of Not required Not required
Required Not required
the Fund [Rule 114AAB] [Rule 114AAB]
(assuming
there is no
other income
from sources
in India)
Notes:

1. Income received by non-resident investor from overseas investment made by IFSC Fund should not be subject to tax in India.
2. The above tax implications are provided assuming that the Fund will be set up as a Trust.

Tax incentives for Fund Manager in IFSC

1. 100% tax holiday for business income for any 10 consecutive years out of 15 years beginning with the year in which registration in IFSC is
obtained
2. Minimum Alternate Tax (MAT) not applicable if Fund Manager is set up as a company and opts for new concessional tax regime
3. Exemption from GST on services rendered in IFSC
Table 1: Exemptions available to IFSC Fund regarded as Category III AIF in which all units other than the units held by sponsor /
manager are held by non-residents

1. Income from transfer of securities (other than shares of Indian company)

2. Income from securities issued by a non-resident
3. Income from securitization trust taxable as business income
Note: Exemption is available to the extent of income that is attributable to the units held by non-resident investors.

Disclaimer

This document is for information purpose only and is not intended to provide a comprehensive opinion on the matters discussed herein.