Budget 2025 | Tax relief for AIFs as income will now be treated as capital gains
Subscribe to enjoy similar stories. MUMBAI : A 10-year-long lobbying effort by the private equity and venture capital industry bore fruit on Saturday when finance minister Nirmala Sitharaman amended section 2 (14) of the Income Tax Act on “capital assets" to include alternative investment fund (AIF) investments in securities.
This means that AIF income, previously treated as business income, will now be considered capital gains. While capital gains are taxed at 12.5%, the highest business income tax slab is 30%.
The amendment is significant given that, according to data from the Securities and Exchange Board of India (Sebi), more than 1,400 AIFs in the country had raised a cumulative ₹5 trillion as of September 2024. AIFs are pooled investment vehicles for institutional and high-net-worth individual investors, managed by a general partner or fund managers for a fee and a portion of the profits.
These vehicles, commonly known in India as private equity and venture capital funds, invest primarily in unlisted early to growth-stage companies. The memorandum of the Finance Bill 2025 elaborates on how the definition of capital asset has been amended to address uncertainty around whether income arising from transacting in securities is capital gain or business income for category I and II AIFs.
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