GST APPLICABILITY ON ALTERNATIVE INVESTMENT FUND (AIF)

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ronak (Querist)
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02 March 2023 Does AIF require to register undef GST?
As cat 1 AIFs are pass through and being final consumer of services, is it fine to not to registered under GST.
Request you to pls share supporting clause or notification to your answer
Thanks in advance!!

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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07 July 2024 Alternative Investment Funds (AIFs) are generally categorized into three categories: Category I, II, and III. Whether an AIF needs to register under GST depends on various factors including the nature of services provided or received, and the thresholds for GST registration.

### GST Registration for AIFs

#### Category I AIFs

Category I AIFs are typically considered pass-through vehicles for tax purposes, meaning the income is taxed in the hands of the investors rather than the AIF itself. However, the requirement to register under GST is determined by the type of services the AIF provides and the aggregate turnover.

**Key Points to Consider:**

1. **Aggregate Turnover Threshold**: As per GST law, any person or entity engaged in the supply of goods or services with an aggregate turnover exceeding ₹20 lakhs (₹10 lakhs for special category states) in a financial year is required to register for GST.

2. **Services Received and Provided**: If the AIF is the final consumer of services and does not supply taxable services, it may not be required to register under GST. However, if the AIF provides any taxable services, it will need to register if the aggregate turnover exceeds the threshold.

3. **Pass-Through Status**: The pass-through status for income tax purposes does not directly exempt AIFs from GST registration. The GST applicability depends on the nature of services and the aggregate turnover.

4. **Reverse Charge Mechanism (RCM)**: If the AIF receives services that fall under the reverse charge mechanism (e.g., legal services from an advocate), it may be liable to pay GST under RCM and, thus, might need to register for GST to comply with these provisions.

### Relevant GST Provisions and Notifications

1. **Section 22 of the CGST Act, 2017**: This section mandates registration for every supplier if the aggregate turnover exceeds ₹20 lakhs (₹10 lakhs for special category states) in a financial year.

2. **Notification No. 10/2017-Central Tax (Rate)**: This notification specifies services under RCM, which includes services by advocates. If AIFs receive such services, they are liable to pay GST under RCM.

3. **Circulars and Clarifications**: While there are no specific notifications exempting AIFs from GST registration solely based on their categorization as pass-through entities, general principles of GST registration based on turnover and nature of services apply.

### Conclusion

Category I AIFs, even though they are pass-through entities for income tax purposes, must evaluate their GST registration requirement based on the aggregate turnover and the nature of services provided or received. If the AIF’s aggregate turnover from taxable supplies exceeds the threshold limit, it must register under GST. Additionally, if the AIF receives services under RCM, it is liable to register and pay GST accordingly.

### Supporting Clauses

1. **Section 22(1) of the CGST Act, 2017**:
> "Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees."

2. **Notification No. 10/2017-Central Tax (Rate)**:
> Specifies the services liable under reverse charge mechanism.

For specific scenarios and detailed advice, consulting with a GST expert or tax advisor is recommended to ensure compliance with the law and to address any unique aspects of your AIF’s operations.

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