Hope you are doing well. Recently, a tax tribunal in Bengaluru ruled that the carry that venture capital and private equity firms charge on their profits is a fee for their services and is not a return on investment (para 43.2). Carry, is what such firms charge as a percent of the profits they have made for their investors. Usually, firms need to cross a minimum profit before they can charge a carry. Now, why is this ruling relevant?
If such investment firms were paying a tax on a service, they would be paying a much higher tax than if it were a return on investment. For firms which are operating on slim margins, this could be the difference between a lucrative career and a life of slogging long hours to make hourly wages.
However, to understand the tax benefits and fund structuring better, this video from the Wall Street Journal is a great start.