Assignment of profits of AIF from fund to Investment Manager

[Bhavesh Suthar]

A is a sponsor as well as Investment Manager (IM) of AIF (Alternate Investment Fund) upto Aug' 2023. The sponsor is the initial capital contributor and further investments are made by other investors. Profits from redemption of units shall be divided between the sponsor and investors. From Aug' 2023, the IM was changed from A to B (sponsor being unchanged i.e. A). Now 100% profits from redemption of units (carried interest) shall be transferred from the Fund to the new IM i.e. B . B also receives fixed management fees from the Fund irrespective of the performance of the Fund. Will this transfer of profits attract GST, being a return on investment. Since distribution of carried interest is dependent on performance of Fund, can it be construed as 'actionable claim'.

AI Summary

Investment Managers' Carried Interest Faces 18% GST as Service Fee, Not Investment Return Under Taxation Rules A discussion forum explores the GST implications of carried interest paid to an Investment Manager (IM) in an Alternate Investment Fund (AIF). The key issue is whether the transfer of profits from fund redemption to the new IM attracts GST. Legal analysis suggests that carried interest is likely taxable as a service fee at 18%, not qualifying as an investment return or actionable claim, especially when the IM has not contributed capital to the fund.