Category II AIFs — private equity funds, debt funds, and fund of funds — have specific GST considerations. Their fee structures, pass-through arrangements, and trustee arrangements create GST exposure that must be managed proactively. Structuring fees correctly minimises disputes with the department.
This article explains the GST advisory for Category II AIFs.
Management Fee Structuring
Management fees are subject to GST at 18%. The advisory covers:
- Determining the correct fee structure.
- Invoicing and documentation.
- Export of services if the fund has offshore investors.
Performance Fee and Carried Interest
The GST treatment of carried interest remains uncertain. The advisory covers:
- Characterisation as service fee or capital gains.
- GIFT City structuring for GST exemption.
- Documentation to support the position.
Pass-Through Expense Structuring
Pass-through expenses — legal, audit, custodian — must be structured correctly. The advisory covers:
- Pure agent conditions under Rule 33.
- Whether the fund manager can reimburse without GST.
- Documentation requirements.
Trustee Fee RCM
Trustee fees attract GST under RCM if the trustee is unregistered. The advisory covers:
- Whether RCM applies.
- Computation and payment.
- ITC eligibility.
Conclusion
Category II AIFs need proactive GST structuring to minimise disputes. A CA firm with fund expertise ensures that the fee structure is compliant and tax-efficient.
At Anuj Desai & Associates, we provide GST advisory for Category II AIFs. Our team structures management fees, carried interest, and pass-through expenses.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.