AIF Taxation
How Alternative Investment Funds are taxed in India — which categories pass income through to you, which pay tax at the fund, and the rates that apply to each.
- Cat I & II — pass-through, Sec. 224
- Cat III — fund level at ~42.744%
- Listed LTCG 12.5%, STCG 20%
- TDS 10% on resident distributions
Taxation by Category
Pass-through
Income other than business income is taxed in the investor's hands under Section 224. The fund itself pays no tax on that income.
Withholding
10% on distributions to resident unit holders, under Section 393.
Pass-through
Identical to Category I — pass-through under Section 224 for all income other than business income, which is taxed at the fund.
Withholding
10% on distributions to resident unit holders, under Section 393.
Taxed at the fund
No pass-through. A Category III AIF structured as a determinate trust is taxed at the fund level at the maximum marginal rate of ~42.744%, which is the 42.744% figure inclusive of surcharge and cess — not the bare 30% slab rate.
Withholding
Not applicable in the same way — distributions reach the investor already taxed.
Rates That Apply
| Income type | Rate | Note |
|---|---|---|
| Short-term capital gains, listed equity | 20% | Was 15% before 23 July 2024. |
| Long-term capital gains, listed equity | 12.5% | Annual exemption of ₹1.25 Lakh. Was 10% before 23 July 2024. |
| Long-term capital gains, unlisted | 12.5% | Long-term after 24 months. Indexation is no longer available. |
| Business income, any category | ~42.744% | Taxed at the fund at the maximum marginal rate. |
Rates apply to transfers on or after 23 July 2024. Section numbers are those of the Income-tax Act, 2025; the 1961 Act equivalents were 115UB, 111A, 112A, 112 and 194LBB. This page is general information, not tax advice — your treatment depends on your residency, the fund's structure and its private placement memorandum.