SEBI has categorized alternative investment funds into 3 categories, viz., Category I AIF, Category II AIF and Category III AIF, which cover Venture Capital Fund/Venture Capital Company, Private equity funds, Debts funds, etc.
CBDT vide order dated 02.05.2016 in F.No. 225/12/2016/ITA.II had issued order in which it has been directed that the income arising from transfer of unlisted shares would be taxable under the head ‘Capital Gain’, irrespective of period of holding, with a view to avoid disputes/litigation on characterization of income from sale of unlisted shares However, the said order provided exception in those case where transfer of unlisted shares is made along with the control and management of underlying business of AIFs. In this case, Assessing Officer (AO) has given power to take appropriate view to tax transfer of unlisted shares.
Now CBDT has issue direction to remove such exception primarily for SEBI registered Category I & II AIFs. Therefore, sale of unlisted shares by SEBI registered Category I & II AIFs shall only be subject to capital gain tax without any exception.