--- title: "Investing in AIFs in Gift City: What You Need to Know" date: 2023-09-04 author: "King Stubb & Kasiva" url: https://ksandk.com/investment/investing-in-aifs-in-gift-city/ --- # Investing in AIFs in Gift City: What You Need to Know Posted On - 4 September, 2023 • By - King Stubb & Kasiva ![|||||||||||||](https://ksandk.com/wp-content/uploads/Investing-in-AIFs-in-Gift-City-What-You-Need-to-Know-2_page-0001.webp) ## **Criteria for AIFs in IFSC** ![](https://ksandk.com/wp-content/uploads/Investing-in-AIFs-in-Gift-City-What-You-Need-to-Know-2_page-0002.webp) ## **AIF in IFSC** Regulatory framework ![](https://ksandk.com/wp-content/uploads/image-6.png) ### **Fund/Investors** - Any entity registered with SEBI or registered or recognized with - a regulator of a foreign jurisdiction may set up an AIF in IFSC Regulatory approval needed from SEBI / IFSCA - The Fund can be set up as a trust or partnership or firm - Investors: - Non-residents Including NRIs ‒Domestic institutional - Investors eligible under FEMA to invest offshore and - Resident individuals with a net worth of at least USD 1 million ![](https://ksandk.com/wp-content/uploads/image-3.png) ### **Sponsor/Manager** - Either the sponsor or Manager of AIF needs to be in IFSC. The sponsor/manager entity can be: - Newly set up company or LLP in IFSC; or - Branch of existing AIF sponsor/manager - Sponsor commitment: - Category I & II: Lower of 2.5% of corpus or USD 750,000 - Category III: Lower of Lower of 5% of corpus or USD 1.5 mn ![](https://ksandk.com/wp-content/uploads/image-4.png) ### **Contribution/investment** - Minimum contribution: - From an Investor: Not less than 150,000 USD - From employees or Directors: 40,000 USD - Investment restrictions: - Category I and II: Maximum 25% of the investible funds in one investee company - Category III AIF: Maximum 10% of its investible funds in one investee company - Permitted securities: - Units of an AIF ![](https://ksandk.com/wp-content/uploads/image-5.png) ### **Key conditions** - Leverage - Category I and II –Not allowed except for meeting temporary fund requirements (i) not exceeding 30 days (ii) not more than 4 occasions in a year and (iii) not more than 10% of the investable funds - Category III –allowed subject to a maximum limit of 2 times the NAV of the fund - Need to appoint custodian: - Category I and II: Mandatory to appoint a custodian if the corpus of AIF exceeds USD 70 million - Category III: Mandatory appointment of custodian ## **AIF Categories in IFSC** ![](https://ksandk.com/wp-content/uploads/image-7.png) ## **Structure 1: Category I & II AIF in IFSC** Inbound and outbound investments **Tax Benefits for Cat I  II AIFs** ![](https://ksandk.com/wp-content/uploads/image-16.png) **Pass Through** – Category I and Category II AIFs have tax pass-through status for [Indian income-tax](https://www.investindia.gov.in/taxation) purposes. **Business income** – Raxable in the hands of the AIF for which 100% tax holiday can be claimed for a period of 10 consecutive years out of a block of first 15 years. --- **Management fees** – No tax on Management fees and also not subject to MAT –beneficial for managerial fee income and carried interest. No GST applicable on services rendered in IFSC. **No capital gains tax in the hands of foreign investors** – On transfer of any bond, foreign currency denominated equity share, GDR, derivative, units of mutual fund, AIF on IFSCstock exchange. **Concessional tax rate** – 4% tax rate on interest for IFSC exchange listed bond. **Overseas investment**– No restriction on investment in the security of foreign co. (no condition of India connection and no SEBI approval required). **PAN and Tax Return** – Foreign investors exempt from obtaining PAN and filing Tax Returns. **Other aspects**– All other aspects on inbound investment remain same as compared to domestic AIF. --- **Notes**:- **Tax exemption** – for AIF’s registered elsewhere in India, business income is taxable since no specific exemption is provided **Capital Gains** – capital gains, Income from other sources are exempt for AIF irrespective of their registration location. However, the same is taxable in the hands of investors. --- ## **Category III AIF in IFSC** Inbound & Outbound investments ![](https://ksandk.com/wp-content/uploads/image-2.png) ![](https://ksandk.com/wp-content/uploads/image-1-2.png) ## **Category III AIF in IFSC** Benefits ![](https://ksandk.com/wp-content/uploads/Investing-in-AIFs-in-Gift-City-What-You-Need-to-Know-2_page-0007.webp) ![](https://ksandk.com/wp-content/uploads/Investing-in-AIFs-in-Gift-City-What-You-Need-to-Know-2_page-0008-scaled.jpg) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)