This article discusses carried interest, a concept in Alternative Investment Funds where fund managers receive a share of profits as a return on their investment, rather than solely as consideration for services provided. The nature of carried interest is critical in determining its tax implications under the GST laws. According to SEBI regulations, AIF managers are required to hold an investment in the fund, aligning their interests with those of the investors. Carried interest is paid to managers after a hurdle rate is achieved by the fund and is considered a return on investment, rather than a service fee. The tax treatment of carried interest is complex, with potential implications under income tax laws as dividends or capital gains, and uncertain treatment under GST laws. The article argues that carried interest does not qualify as consideration for services under GST laws, and its tax treatment should be determined based on its true nature as a return on investment.
The article was authored by Shareen Gupta, Partner, and Rajan Mishra, Principal Associate, published in SCC Times.
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Shareen specializes in indirect tax laws including Goods and Services Tax, Customs Law and Foreign Trade Policy and erstwhile indirect tax laws such as Value Added Tax Laws, Service Tax, Excise duty. Shareen has 19 years of experience in providing advisory and litigation support services to large corporates as well as start-ups.