How are Category 3 AIFs taxed in GIFT City?

Category 3 Alternative Investment Funds in GIFT City, which is Gujarat International Finance Tec-City International Financial Services Centre in India, are subject to specific tax provisions designed to attract fund management. Generally, Category 3 AIFs are funds that employ complex trading strategies including hedge fund strategies and may be open-ended, unlike Category 1 and 2. In GIFT City IFSC, tax benefits have been provided under Indian tax law to encourage AIFs to set up there, including exemptions or concessional rates for certain incomes, but taxation is complex and depends on fund structure, whether it is set up as a trust, company, or LLP, residency of investors, type of income such as capital gains, business income, or other income, and double taxation avoidance agreements. Typically, funds may have pass-through status for some categories, but Category 3 may be taxed at fund level for business income. Because tax laws change frequently and depend on specific facts, fund managers should consult tax advisors and official IFSCA guidance and Income Tax Act provisions for current rates, exemptions, and filing requirements applicable to Category 3 AIFs in GIFT City.