Decoding The Alternative Investment Funds Tax Puzzle In India: A Category-Wise Analysis

"In this world, nothing is certain except death and taxes."- Benjamin Franklin

For Alternative Investment Funds (AIFs) in India, the second certainty often proves more complex than the first.

Over the past decade, India's tax framework for AIFs regulated under the SEBI (Alternative Investment Funds) Regulations, 2012 has evolved significantly. The Finance Act, 2015 introduced section 115UB, establishing a statutory pass-through regime for Category I and II AIFs. More recently, the Finance Act, 2025 has clarified the capital gains treatment of securities held by these funds by amending section 2(14) of the Income-tax Act (IT Act). The amendment provides that securities held by an "investment fund" referred to in section 115UB are to be regarded as capital assets for the purposes of the Act. As a result, gains arising from the transfer of such securities are to be treated as capital gains rather than business income. At the same time, judicial interpretation has shaped how the