CBDT Notifies Tax Exemption On Investment From Sovereign Wealth Funds In Indian Infrastructure

The Income Tax Department has issued a notification to expand the scope of 'infrastructure' for the purpose of claiming income tax exemption under Section 10 (23FE) of the IT Act to attract more investments into the country. The change gives sovereign wealth funds and global pension funds the benefit of income tax exemption on their investment in Indian infrastructure.

The tax exemption will apply to interest, dividend and capital gain incomes.

In a notification, the Central Board of Direct Taxes (CBDT) said changes have been made to Section 10 (23FE) of the IT Act introduced via the Finance Act 2020. The section permits a complete tax exemption to a certain exclusive category of non-resident investors on their income streams such as dividends, interest and capital gains.

The notification came into force from 1 April 2020 and shall be applicable for the assessment year (AY) 2021-22 and subsequent AYs.

In Budget 2020, Finance Minister Nirmala Sitharaman had announced tax exemption for such infrastructure investments in India.

"In order to incentivise the investment made by the sovereign wealth fund of foreign governments in the priority sectors, I propose to grant 100 percent tax exemption to their interest, dividend and capital gains incomes in respect of investment made in infrastructure and other notified sectors before March 31, 2024, and with a minimum lock-in period of 3 years," Sitharaman had said.

The CBDT notification aligns the definition of the term "infrastructure facility" with the harmonised master list issued by the Department of Economic Affairs in 2018.