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Understanding GST obligations for Alternative Investment Funds
As the Alternative Investment Fund (AIF) landscape continues to grow in India, so does the complexity around tax complianceโparticularly GST. One common question fund managers and trustees face is:ย โDoes our AIF need to register under GST?โ
The answer isnโt always straightforward. Letโs break it down.
โ In Most Cases, AIFs Do Not Need GST Registration
Generally speaking, AIFs themselvesย do not supply goods or services, and thereforeย are not required to register under GST. Here’s why:
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GST on fund management or advisory servicesย is collected and paid by theย fund manager, not the AIF.
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Theย returns earned by the AIFโsuch as capital gains, interest, or dividendsโareย not considered taxable suppliesย under GST.
If your AIF is purely investment-focused and does not engage in any outward taxable supply, youโre likely outside the GST net.
But Watch Out for RCM Scenarios
Despite havingย no taxable revenue, your AIFย may still be required to register under GSTย if it falls under theย Reverse Charge Mechanism (RCM).
๐ 1.ย Import of Services
If your AIF avails services from outside Indiaโsuch as:
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Legal or tax advice
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SaaS platforms or investment tech tools
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Consulting services
โฆthen you mustย pay GST under RCM, and registration becomes mandatory.
๐ฎ๐ณ 2.ย Domestic Services Covered Under RCM
Even if you operate entirely within India, GST applies under RCM if you use:
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Sponsorship or branding services
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Security, housekeeping, or legal services from Indian providers
In both cases, theย liability to pay GST shifts to the AIF, triggeringย compulsory registrationโregardless of whether you have any turnover.
Why Some AIFs Are Receiving GST Notices
Recently, several AIFs have received GST noticesโnot for active non-compliance, but due toย uncertainty or lack of awareness around RCM provisions.
Many funds using cross-border services or working with domestic vendors didnโt realize they had aย GST liability under RCM, which led to missed registrations or payments.
If your AIF uses any such services, aย proactive compliance review is essential.
What About GIFT City (IFSC) AIFs?
AIFs operating inย GIFT IFSCย enjoy major tax advantages, including:
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GST exemption on management fees
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No GST on many cross-border transactions
This makes GIFT City aย preferred jurisdictionย for structuring Category III AIFs seeking tax efficiency.
