Explained: Role of alternate investment fund in sale of stressed assets

Srinivasan said, “These funds are managed by like us and other managers – it could global or Indian like KKR, Blackstone for example. We have developed over the period of time skillset to buy a non-performing loan and do whatever is required to either recover the underlying loan or to turnaround the company if the company is likely to have a good business prospect going forward.”

He said, “Most of the AIFs are structured as a trust in India. At present the tax regulation allows a pass-through of income which means an investor, let us say a sovereign fund or pension fund which is an investor in an AIF will pay tax according to wherever jurisdiction he is coming from. So the pass through currently is available only for equity i.e. capital gains and interest income. Technically the pass-through is not available to what is called a business income. When we make a gain on a non-performing loan acquisition, the tax authorities could potentially assess it as a business income. What we are simply saying is that that business income should also be given a pass-through. Nobody is saying we will not pay taxes; whoever is the investor, wherever they are, they will pay whatever is the tax due on that income. That is a simple way to address it. Otherwise, another way to address it is to just call it capital gains. It is up to the government to decide what they would like to do.”