Investments in AIF
This query is : Resolved
23 January 2025
Mr Amit and his two friends Rajesh and Rakesh are planning to invest in Alternative Investment Fund (AIF).
They are planning to invest this amount of Rs 1 crore.
The minimum requirement to invest in AIF is Rs 1 Crore (i.e. 1,00,00,000)
They decided to form “Joint Venture” and open a bank account in the name of “Joint Venture” and collect money invest in AIF.
Income Tax Treatment of " Joint Venture"
Query 1 - Under what head income of Capital gains, interest income and Dividend Income from investments will be taxed in the hands of “Joint Venture”?
Allowable Expenses for " Joint Venture"
Query 2 - Whether “Joint Venture” allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments?
Tax Treatment of Income Distribution to Members
Query 3 - Under what head distribution of income of Capital gains, interest income and Dividend Income will be taxed in the hands of Mr Amit, Rajesh and Rakesh?
Allowable Expenses for Members
Query 4 - Whether Mr Amit, Rajesh and Rakesh allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments of their “Joint Venture”?
Deduction under Section 54F for Capital Gains from Investments in AIF
Query 5 - Whether Mr Amit, Rajesh and Rakesh allowed exemption under section 54 F for Capital gains from investments in AIF?
Query 6 – Can the investment in AIF be made in the name of “Joint Venture”
Query 7- Can “Joint Venture” be named in the combined name of three investors i.e. Mr Amit, Rajesh and Rakesh
They are planning to invest this amount of Rs 1 crore.
The minimum requirement to invest in AIF is Rs 1 Crore (i.e. 1,00,00,000)
They decided to form “Joint Venture” and open a bank account in the name of “Joint Venture” and collect money invest in AIF.
Income Tax Treatment of " Joint Venture"
Query 1 - Under what head income of Capital gains, interest income and Dividend Income from investments will be taxed in the hands of “Joint Venture”?
Allowable Expenses for " Joint Venture"
Query 2 - Whether “Joint Venture” allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments?
Tax Treatment of Income Distribution to Members
Query 3 - Under what head distribution of income of Capital gains, interest income and Dividend Income will be taxed in the hands of Mr Amit, Rajesh and Rakesh?
Allowable Expenses for Members
Query 4 - Whether Mr Amit, Rajesh and Rakesh allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments of their “Joint Venture”?
Deduction under Section 54F for Capital Gains from Investments in AIF
Query 5 - Whether Mr Amit, Rajesh and Rakesh allowed exemption under section 54 F for Capital gains from investments in AIF?
Query 6 – Can the investment in AIF be made in the name of “Joint Venture”
Query 7- Can “Joint Venture” be named in the combined name of three investors i.e. Mr Amit, Rajesh and Rakesh
12 August 2025
Query 1:
Under what head income of Capital gains, interest income and Dividend Income from investments will be taxed in the hands of “Joint Venture”?
A Joint Venture (JV), if not registered as a legal entity (e.g., partnership or company), is treated as an association of persons (AOP) for Income Tax purposes.
Income of the JV will be taxed as income of an AOP.
The nature of income remains the same in the hands of JV:
Capital Gains: Taxed under Capital Gains head (short-term or long-term based on holding period).
Interest Income: Taxed under “Income from Other Sources”.
Dividend Income: Taxed under “Income from Other Sources” (dividend income is taxable in the hands of shareholders since Dividend Distribution Tax abolished).
Query 2:
Whether “Joint Venture” allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments?
Yes, expenses wholly and exclusively incurred for earning such income are allowed as deduction against that income in the hands of JV.
For example, brokerage fees, investment advisory fees, fund management fees, bank charges related to investment, etc., can be allowed as expenses.
Query 3:
Under what head distribution of income of Capital gains, interest income and Dividend Income will be taxed in the hands of Mr Amit, Rajesh and Rakesh?
When the JV distributes income to members, it is not taxed again in the hands of the JV (no pass-through status).
The income distributed is taxed in the hands of the individual members under respective heads:
Capital Gains: Capital Gains head.
Interest Income: Income from Other Sources.
Dividend Income: Income from Other Sources.
The share of income of each member will be as per the JV agreement (usually equal or as agreed).
Query 4:
Whether Mr Amit, Rajesh and Rakesh allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments of their “Joint Venture”?
No, expenses incurred by the JV cannot be claimed again by individual members.
Only expenses incurred individually by members (like advisory fees paid personally) can be claimed by them.
Since income arises at JV level and taxed at member level on distribution, expenses should be claimed only at JV level.
Query 5:
Whether Mr Amit, Rajesh and Rakesh allowed exemption under section 54F for Capital gains from investments in AIF?
Section 54F applies to capital gains arising on transfer of a long-term capital asset (other than a residential house) when invested in residential property.
Investment in AIF does not qualify for exemption under Section 54F.
Therefore, exemption under 54F is not available for capital gains invested in AIF.
Query 6:
Can the investment in AIF be made in the name of “Joint Venture”?
No.
Most AIFs require investment by individuals, HUFs, companies, LLPs, trusts—legal entities or natural persons.
An unregistered JV (which is just a contractual arrangement without legal entity status) cannot open bank account or invest in AIF.
JV should be formed as a partnership firm or LLP or investment should be made individually by members.
Query 7:
Can “Joint Venture” be named in the combined name of three investors i.e. Mr Amit, Rajesh and Rakesh?
No.
Investment accounts cannot be held in a combined name like “Amit-Rajesh-Rakesh JV” unless a legal entity (partnership firm, LLP) is formed and registered.
For joint ownership, either:
Each person invests individually in their own name, or
A legal entity (partnership/LLP/company) is created which invests in AIF.
Under what head income of Capital gains, interest income and Dividend Income from investments will be taxed in the hands of “Joint Venture”?
A Joint Venture (JV), if not registered as a legal entity (e.g., partnership or company), is treated as an association of persons (AOP) for Income Tax purposes.
Income of the JV will be taxed as income of an AOP.
The nature of income remains the same in the hands of JV:
Capital Gains: Taxed under Capital Gains head (short-term or long-term based on holding period).
Interest Income: Taxed under “Income from Other Sources”.
Dividend Income: Taxed under “Income from Other Sources” (dividend income is taxable in the hands of shareholders since Dividend Distribution Tax abolished).
Query 2:
Whether “Joint Venture” allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments?
Yes, expenses wholly and exclusively incurred for earning such income are allowed as deduction against that income in the hands of JV.
For example, brokerage fees, investment advisory fees, fund management fees, bank charges related to investment, etc., can be allowed as expenses.
Query 3:
Under what head distribution of income of Capital gains, interest income and Dividend Income will be taxed in the hands of Mr Amit, Rajesh and Rakesh?
When the JV distributes income to members, it is not taxed again in the hands of the JV (no pass-through status).
The income distributed is taxed in the hands of the individual members under respective heads:
Capital Gains: Capital Gains head.
Interest Income: Income from Other Sources.
Dividend Income: Income from Other Sources.
The share of income of each member will be as per the JV agreement (usually equal or as agreed).
Query 4:
Whether Mr Amit, Rajesh and Rakesh allowed expenses incurred in earning Capital gains, interest income and Dividend Income from investments of their “Joint Venture”?
No, expenses incurred by the JV cannot be claimed again by individual members.
Only expenses incurred individually by members (like advisory fees paid personally) can be claimed by them.
Since income arises at JV level and taxed at member level on distribution, expenses should be claimed only at JV level.
Query 5:
Whether Mr Amit, Rajesh and Rakesh allowed exemption under section 54F for Capital gains from investments in AIF?
Section 54F applies to capital gains arising on transfer of a long-term capital asset (other than a residential house) when invested in residential property.
Investment in AIF does not qualify for exemption under Section 54F.
Therefore, exemption under 54F is not available for capital gains invested in AIF.
Query 6:
Can the investment in AIF be made in the name of “Joint Venture”?
No.
Most AIFs require investment by individuals, HUFs, companies, LLPs, trusts—legal entities or natural persons.
An unregistered JV (which is just a contractual arrangement without legal entity status) cannot open bank account or invest in AIF.
JV should be formed as a partnership firm or LLP or investment should be made individually by members.
Query 7:
Can “Joint Venture” be named in the combined name of three investors i.e. Mr Amit, Rajesh and Rakesh?
No.
Investment accounts cannot be held in a combined name like “Amit-Rajesh-Rakesh JV” unless a legal entity (partnership firm, LLP) is formed and registered.
For joint ownership, either:
Each person invests individually in their own name, or
A legal entity (partnership/LLP/company) is created which invests in AIF.
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