Fund Tax FAQs

No. Only a fund that qualifies as a specified fund gives its unit holders that treatment, and a fund qualifies only if its units (other than the sponsor’s or manager’s) are held by non-residents, with a limited exception. A GIFT IFSC fund that takes Indian residents is taxed as a trust.

Law: Schedule VI, Sl. 9 and Note 1(g)(C)

Not necessarily. Tax deducted at source is an advance. A resident with a ₹5,00,000 long-term gain from a Category II fund owes ₹65,000 (12.5% plus 4% cess); the fund deducts ₹50,000 (10%), leaving ₹15,000 to pay with the return.

Law: Section 224; section 393, Table Sl. 4(iii)

No. The fund manager, the fund and the investors are separate taxpayers. A deduction available to an IFSC fund management company reduces its own taxable income only; it does not make the investors’ returns tax-free.

Law: Section 147

No. The specified-fund exclusion is built on non-resident unit holders. Residents generally cannot be admitted without the fund losing that status, apart from investors who become resident later, up to 5% of the units and subject to prescribed conditions.

Law: Schedule VI, Note 1(g)(C)

No. The deduction covers income from the approved business activities of the IFSC unit. Income from anything else falls outside it. The deduction also runs only for the period the section allows: for an IFSC unit, 20 consecutive tax years out of 25, at its option.

Law: Section 147(2)(b) and (3)