TAXATION OF INVESTMENT FUND AND SECURITIZATION TRUST IN INDIA
TAXATION OF INVESTMENT FUND AND SECURITIZATION TRUST IN INDIA
TAXATION OF INVESTMENT FUND & SECURITISATION TRUST
- What do you mean by Investment Fund?
Investment Fund means Category I or Category II Alternative Investment Fund and is regulated under the SEBI (Alternative Investment Fund) Regulations, 2012 or under the IFSC Authority Act, 2019.
- What is Category I & Category II Alternative Investment Fund?
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ALTERNATIVE INVESTMENT FUND |
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CATEGORY I |
Investment in Start-ups, SME, social and economically viable projects.
Example: Venture Capital Fund, SME Funds, Social Venture Funds, Infrastructure Funds, Angel Investment Funds. |
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CATEGORY II |
Investment in Equity & Debt Securities
Example: Private Equity, Funds, Debt Fund, Fund of Funds. |
- Taxation of Investment Fund?
The tax rate and the taxability of income of Investment Fund is as follows:
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S.NO |
EXPLANATION |
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All incomes of investment fund (except PGBP) are Exempt u/s 10(23FBA). |
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All income received by unit holders from investment fund are taxable in hands of unit holders (except PGBP) u/s 115UB. |
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Tax rates for investment fund (PGBP).
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If the income accruing/ arising/ received by fund during the Previous Year and has not been paid/ credited to unit holders, then the same shall be deemed to have been credited to the account of Investor on the last day of P.Y. & taxable in hands of unit holder.
NOTE: If income already taxed in the year of accrual, then it is not taxable in the year of receipt. |
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Any income accruing or received by a person being unit holder of an investment fund, out of investment made in the investment fund, shall be chargeable to income tax in the same manner as if it were the income accruing/ received by Unit Holder. |
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Income, nature & proportion will be same in the hands of Unit Holder. |
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Investment fund is compulsory required to file return u/s 139(4F). |
Since, the income distributed (except PGBP) is chargeable in the hand of Unit Holders, the Investment Fund is required to deduct TDS u/s 194LBB on income distributed at the rate mentioned below:
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ASSESSEE |
TDS RATE |
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Non-Resident/ Foreign Company |
Rate in force |
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Resident |
10%. |
- Losses incurred by Investment Fund (w.e.f. 01.04.2019)?
If in any Year there is a loss under any head of Income at the Fund level then first fund will be set-off such losses and if such loss cannot be or is not wholly set-off against income under any other head of income, then such losses:
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Losses Head |
Set-off |
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PGBP Losses |
It can be carried forward and set off by Fund only. |
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Other Losses |
It will be passed on to the Unit Holders (who hold the units for atleast for 12 months or more) to be carried forward and set-off in their individual hands. |
NOTE 1: If the unit holders did not hold the units for 12 months, then such losses will not be allowed to unit holders as well as the Investment Fund.
NOTE 2: Before 01.04.2019 all losses were carried forward by Fund only but from 01.04.2019 losses other than PGBP allowed to be carried forward to unit holders so any accumulated losses (other than PGBP) at fund level on 31.03.2019 shall be distributed to unit holders holding units on 31.03.2019 and allowed to be carried forward and set off by unit holders for remaining period.
- What do you mean by Securitization Trust?
Securitization is a financial process that involves pooling and packaging various types of assets, which are then sold to investors with cash flow from underlying assets to make interest and principal payments to the investors. The Securitization Trust is the financial vehicle used in the process of securitization and plays a crucial role in converting various types of liquid financial assets into marketable securities.
- Taxation of Securitization Trust?
The tax rate and the taxability of income of Securitization Trust is as follows:
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S.NO |
EXPLANATION |
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All incomes of Securitization Trust from the activity of Securitization are Exempt in hands of trust u/s 10(23DA). |
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Income accruing or received by investor from securitization trust (out of investment made in the trust), shall be taxable in the hands of Investors in the same manner & to the same extent as if investor had made investment directly in the underlying asset & not through the trust (Section 115TCA). |
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If the income accruing/ arising/ received by trust during the Previous Year and has not been paid/ credited to investors, then the same shall be deemed to have been credited to the account of Investor on the last day of P.Y. & taxable in hands of investors.
NOTE: If income already taxed in the year of accrual, then it is not taxable in the year of receipt. |
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Income, nature & proportion will be same in the hands of Unit Holder. |
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Investment fund is compulsory required to file return u/s 139(4CEB). |
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Securitization Trust means a SPV or a trust set up by Reconstruction Company or Securtization Company under the regulation of SARFAESI Act, 2002 or SEBI (public offer & listing of Securitized Debt Instrument) Regulation 2008 or RBI direction/ Guidelines. |
Since, the income distributed by trust is chargeable to tax in the hand of Investors, the Securitization Trust is required to deduct TDS u/s 194LBC on income distributed at the rate mentioned below:
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ASSESSEE |
TDS RATE |
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Non-Resident/ Foreign Company |
Rate in force |
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Resident Individual/ HUF |
25%. |
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Other resident Payee |
30% |
NOTE:
The Securitization Trust & Investment Fund shall provide break up regarding nature and proportion of its income and other details to unit holder/ investor upto 30th June of the F.Y. following the P.Y. and Income Tax Authority (CIT/PCIT) upto 30th November (15th June in case of investment fund) of the Financial Year following the Previous Year.
