What is the story about?
The Delhi High Court has recently settled a long-standing ambiguity around the tax treatment of Category III Alternative Investment Funds (AIFs). In its ruling in the Equity Intelligence AIF Trust case (July 29, 2025), the Court
held that such funds cannot be classified as "indeterminate trusts" merely because the names of investors are not mentioned in the trust deed, so long as their beneficial interests are otherwise ascertainable.
The judgment also read down CBDT Circular No. 13/2014, which had earlier directed tax authorities to treat Category III AIFs as indeterminate trusts if investor details were missing from the deed.
This often pushed such funds into the highest tax bracket of over 40%.
What the court said?
The High Court clarified that investor details do not necessarily need to be in the trust deed itself. If the fund can establish investors’ identities and their respective shares through contribution agreements, information memoranda, or investor registers maintained under SEBI regulations, that is sufficient for the trust to be considered "determinate."
Why the ruling matters?
The decision ensures that Category III AIFs are now taxed as determinate trusts, meaning income will be taxed in the hands of the trustee at
rates applicable to the nature of income—such as 12.5% plus surcharge for long-term capital gains—rather than the maximum marginal rate of 39–40%.
Rohit Beri, Founder of ArthAlpha, called the ruling a "significant step" for the industry.
“The Court has now clarified that Category III AIFs are determinate trusts. Even though investor names may not feature in the trust deed, their share is clearly ascertainable through contribution agreements and the information memorandum. As a result, long-term capital gains will attract the concessional
12.5% rate plus surcharge. This ruling gives fund managers greater confidence in compliance and strengthens investor trust in the AIF industry’s future," he said.
Compliance steps
Experts say the ruling removes a key technical hurdle that had been creating tax uncertainty for funds and investors alike.
Arun Patel, Founder & Partner at Arunasset Investment Services, explained the shift.
“For years, the tax department relied on a 2014 circular which said that if a Category-III AIF’s trust deed didn’t spell out the names
of every investor and their exact share, the trust would be treated as indeterminate and taxed at the maximum rate. The Delhi High Court has now set that aside. As long as the fund’s normal records show who the investors are and what their share is, that is enough," he said.
On compliance, Patel advised funds to focus on documentation and record-keeping:
“Investor agreements should clearly spell out commitments, units, and profit-sharing ratios. An updated investor register covering names, units, capital calls, and
redemptions should be maintained as the primary proof that every investor’s share is fixed. Trustees and managers should also update governance manuals to reflect this new legal position," he said.
Long-term impact on the AIF industry
The judgment is expected to reduce tax burdens, improve post-tax returns, and make Category III AIFs more attractive for investors.
With regulatory clarity in place, industry participants believe the decision could bolster confidence in the domestic AIF sector and attract more capital
into these vehicles.
The judgment also read down CBDT Circular No. 13/2014, which had earlier directed tax authorities to treat Category III AIFs as indeterminate trusts if investor details were missing from the deed.
This often pushed such funds into the highest tax bracket of over 40%.
What the court said?
Why the ruling matters?
The decision ensures that Category III AIFs are now taxed as determinate trusts, meaning income will be taxed in the hands of the trustee at
Rohit Beri, Founder of ArthAlpha, called the ruling a "significant step" for the industry.
“The Court has now clarified that Category III AIFs are determinate trusts. Even though investor names may not feature in the trust deed, their share is clearly ascertainable through contribution agreements and the information memorandum. As a result, long-term capital gains will attract the concessional
Compliance steps
Experts say the ruling removes a key technical hurdle that had been creating tax uncertainty for funds and investors alike.
Arun Patel, Founder & Partner at Arunasset Investment Services, explained the shift.
“For years, the tax department relied on a 2014 circular which said that if a Category-III AIF’s trust deed didn’t spell out the names
On compliance, Patel advised funds to focus on documentation and record-keeping:
“Investor agreements should clearly spell out commitments, units, and profit-sharing ratios. An updated investor register covering names, units, capital calls, and
Long-term impact on the AIF industry
The judgment is expected to reduce tax burdens, improve post-tax returns, and make Category III AIFs more attractive for investors.
With regulatory clarity in place, industry participants believe the decision could bolster confidence in the domestic AIF sector and attract more capital
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