As per the notification, income from interest, dividend and long term capital gains made by sovereign wealth funds, and global pension funds through their investment in infrastructure projects and companies in India would be 100 per cent exempt from tax. Such in investment can be made via both debt and equity but it should be in infrastructure sector.
The provision was introduced by Finance Minister Nirmala Sitharaman in the Finance Act, 2020 and was announced as part of budget proposals for 2020-21 to attract long-term funding for developing India's infrastructure. Estimates suggests that infrastructure sector would require investments of more than $1 trillion over next four years.
For attracting such long term investments, the CBDT notification has also widened the definition of infrastructure to include sub-sectors of transport, logistics, energy, water and sanitation, communication, social and commercial infrastructure. Tax exemption for investment in infrastructure were earlier limited to a smaller number of areas.
The CBDT said that the notification will come into force from April 1, 2021 and will be applicable for assessment year 2021-22 and subsequent assessment years. The exemption will be available for investments made in notified sectors before March 31, 2024 and with a minimum lock-in period of 3 years.
The proposal is aimed at attracting funds across the globe with huge reserves to channel their money into infrastructure. India has its own sovereign wealth fund - the National Investment and Infrastructure Fund (NIIF) that is investing in infrastructure projects but the country has also seen investments from global sovereign wealth funds such Singapore-based GIC, Temasek Holdings and Middle East-based Abu Dhabi Investment Authority.
With the latest changes in investment guidelines in Indian infrastructure, overseas funds would now be able to invest in 34 defined infrastructure sectors, both through direct investment or indirect route made through vehicles such as alternate investment funds or infrastructure investment trusts.
With wide ranging list of infrastructure projects that includes social infrastructure, physical infra, sports facilities, city gas distribution network, public transport, pipelines, logistic parks, rail network on the list for investment by overseas sovereign funds, it is expected a lot of projects would now be initiated in coming months.