(A) SEBI UPDATES
1) Matters related to Alternative Investment Funds (AIFs)/Venture Capital Funds (VCFs) approved by the SEBI in its board meetings:
a) AIFs are given flexibility to manage unliquidated investments beyond the expiry of a scheme’s tenure by allowing these investments to continue during a Dissolution Period, in place of the previous option of launching a new liquidation scheme. An additional one-year Liquidation Period is provided for schemes dealing with unliquidated investments that have expired or will expire within three months from the notification of this amendment.
b) SEBI has introduced a way for old Venture Capital Funds (VCFs), which struggle to sell all their investments before their deadlines, to switch to newer rules under the Alternative Investment Funds (AIF) regulations. This switch will give them more time and flexibility to deal with their unsold investments. The VCFs can become “Migrated VCFs” without paying extra fees or facing new investment conditions. They will also get an extra year to liquidate their investments if they have no investor complaints.
2) SEBI circulars:
a) SEBI Mandates Certification for AIF Managers’ Investment Teams:
SEBI now requires that key personnel of Alternative Investment Fund (AIF) Managers’ investment teams obtain the NISM Series-XIX-C: Alternative Investment Fund Managers Certification. This certification is mandatory for new AIF registration applications and the launch of new AIF schemes from 10 May 2024 onwards, while existing AIFs must comply by 9 May 2025.
(B) INCOME TAX UPDATES
a) Notification of CII for FY 24-25: The CBDT has notified the cost inflation index (CII) to be used for the purpose of indexation while computing long-term capital gains, as 363 for the financial year 2024-25.
b) CBDT Launches e-Verification Scheme 2021 for Income Mismatches: The CBDT introduced the e-Verification Scheme 2021 on 26 February 2024 to address discrepancies between third-party reported interest and dividend income and taxpayers filed ITRs, particularly where filings are absent. This initiative allows taxpayers to respond to communications without it being a formal notice, covering FY 2022 and 2023. Using an online portal, taxpayers can reconcile discrepancies without additional documentation. Discrepancies related to interest income in Schedule OS of the ITR will be automatically resolved, and those unable to reconcile online can consider filing an updated ITR to rectify any underreported income, if eligible.
(C) RBI UPDATES:
a) RBI Regularizes Issuance of Partly Paid Units by AIFs to Non-Residents: The RBI addressed this with a notification on 14 March 2024, amending the definition of ‘unit’ to explicitly include partly paid-up units as permissible under SEBI regulations. However, this change only applied prospectively, leaving previously issued partly paid-up units in question. To resolve this, the RBI issued a circular on 21 May 2024, allowing AIFs to regularize past issuances through compounding under FEMA. AD Category-I banks are required to complete necessary administrative tasks, including reporting via the FIRMS Portal, before seeking RBI’s compounding approval for such issuances.
b) RBI Issues Guidelines on RE Investments in AIFs: The RBI’s recent circular, dated December 19, 2023, clarifies rules for regulated entities (REs) investing in Alternative Investment Funds (AIFs). It specifies that REs can invest in AIFs, excluding direct equity shares in their debtor companies but including other investments like hybrid instruments. Provisioning requirements now apply only to the RE’s investment in AIF schemes that directly invest in debtor companies, not the entire AIF investment. Specific rules apply if an AIF doesn’t invest in the RE’s debtor company. These guidelines are part of the RBI’s regulatory framework under the Banking Regulation Act, Reserve Bank of India Act, and National Housing Bank Act.