Understanding AIF Taxation in India: Insights into Categories I, II, and III with Corpzo
- Corpzo Ventures Private Limited
- 1 day ago
- 3 min read
Alternative Investment Funds (AIFs) have emerged as a powerful vehicle for investors seeking diversified and high-yield opportunities in India’s evolving financial landscape. As the AIF ecosystem grows, understanding the taxation structure of Category I, II, and III AIFs becomes crucial for fund managers, investors, and entrepreneurs.
At Corpzo, we specialize in providing regulatory, tax, and compliance advisory for AIF registration and operations in India. Our expert consultants help clients navigate complex tax regulations, ensuring both compliance and tax efficiency.
What are Alternative Investment Funds (AIFs)?
An Alternative Investment Fund (AIF) is a privately pooled investment vehicle established in India that collects funds from investors—Indian or foreign—to invest according to a defined investment policy. AIFs are governed by the SEBI (Alternative Investment Funds) Regulations, 2012, and classified into three categories based on their investment focus and risk profile.
1. Category I AIFs – Supporting Early-Stage and Impact Investments
Category I AIFs include venture capital funds, angel funds, infrastructure funds, SME funds, and social venture funds.
These funds enjoy pass-through status under the Income Tax Act, meaning the income (other than business income) is taxed directly in the hands of the investors.
Business income, however, is taxed at the AIF level.
This structure promotes investments in startups and socially beneficial projects by ensuring tax transparency and minimizing double taxation.
At Corpzo, we help Category I AIFs maintain proper fund documentation and tax compliance to fully leverage available exemptions and incentives.
2. Category II AIFs – Private Equity and Debt Funds
Category II AIFs include private equity funds, debt funds, and real estate funds that do not fall under Category I or III.
Category II AIFs also enjoy pass-through status for non-business income.
Capital gains and interest income are taxed in the hands of investors based on their applicable tax rates.
Business income, if any, is taxed at the AIF level.
Corpzo assists in structuring Category II funds strategically to ensure maximum post-tax returns while maintaining full regulatory compliance.
Category III AIFs employ complex or diverse trading strategies, including derivatives and leverage.
Category III AIFs are taxed at the fund level, as they are not eligible for pass-through status.
All income, whether capital gains or business income, is taxable in the hands of the AIF at the maximum marginal rate.
Corpzo’s experts guide Category III AIFs in managing taxation complexities, ensuring accurate filings, and exploring structuring options to mitigate tax exposure.
How Corpzo Helps
AIF Setup and SEBI Registration assistance.
Tax structuring and compliance advisory for all AIF categories.
Periodic filings and reporting with SEBI and Income Tax authorities.
Fund documentation, investor onboarding, and audit assistance.
Whether you’re setting up a new AIF or managing an existing one, Corpzo provides the strategic clarity and compliance expertise you need to succeed in India’s dynamic investment market.
Talk to Our AIF Experts Today!
Visit www.corpzo.com
to learn more about AIF registration, taxation, and compliance services.
Corpzo – Your Trusted Partner in AIF and Financial Compliance.
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