Income Tax Exemptions On Sovereign Wealth Funds (SWF) Income From Infra Investment Notified


The Central Board of Direct Taxes (CBDT) through a notification dated has widened the scope of ‘infrastructure’ for the purpose of claiming income tax exemption under Section 10 (23FE) of the I-T Act introduced via the Finance Act 2020.

The said Section permits a complete tax exemption to certain exclusive category of non-resident investors on their income streams such as dividends, interest and capital gains.

“Pursuant to the notification, investments made by these investors fund directly or through vehicles such as AIF (alternative investment fund) into as many as 34 defined infrastructure sectors will qualify.

This notification shall come into force from April 1, 2021, and shall be applicable for the assessment year (AY) 2021-22 and subsequent AYs, the CBDT said.

Finance Minister Nirmala Sitharaman had in Budget 2020 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 per cent 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,” she 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. This would make the investing in high-quality Infrastructure projects attractive despite of country’s ratings.

Also, such a wide-ranging list of qualifying investments for tax incentives would allow capital formation to flow into social infrastructure such as educational institutions, sport stadiums, tourism, operationalise long-pending investment creation of theme based parks including food parks, mult-modal logistics parks and textile parks.