AIFs stare at higher tax outgo on investment manager's performance fees

Tax uncertainty could dissuade global players from setting up funds in India

A recent ruling by an indirect tax tribunal pertaining to alternative investment funds (AIFs) has put the industry on tenterhooks.

The Customs, Excise & Service Tax Appellate Tribunal, Bengaluru, in the matter of ICICI Econet Internet and Technology Fund (ICICI Funds) versus Commissioner Of Central Tax, has ruled that 'carried interest’ or performance fee--a share of the profits of an investment paid to the investment manager if the fund’s returns meet a certain threshold or hurdle rate --ought to attract service tax in the form of GST at 18 per cent.

Suppose a fund has a hurdle rate of 10