If the same investors use other routes such as portfolio management scheme (PMS) or mutual funds, the tax outgo could reduce to as low as 30 per cent. Total investments of Category-III AIFs grew 20 times during the four-year period between June 2015 and June 2019. “If such AIFs are structured as discretionary trust, then the tax rate on dividend income could be as high as 43 per cent.”The tax pass-through status allows a fund to pass on the tax obligations to the investors. Hence, they can pay the investors in full leaving the investors to pay tax on the gains based on their personal income brackets. However, unlike mutual funds that are subject to serious investment restrictions, AIFs enjoy a liberal regime.

Source: Economic Times February 21, 2020 06:00 UTC