The Central Board of Direct Taxes (CBDT) on Tuesday gave a big relief to sovereign wealth funds (SWFs) and pension funds. The board has extended the time limit for these funds to avail income tax exemption for another 6 years.
Now this exemption will remain in force till 2030. This decision has been given under Section 10 (23FE) of the Income Tax Act, 1961, which provides tax exemption to certain foreign investors on investments made in India. The move is aimed at attracting long-term foreign investment in India and speeding up infrastructure and development projects. The government hopes that with this exemption, sovereign wealth funds and pension funds will make large-scale capital investments in sectors like highways, metros, airports, real estate and energy projects in India, which will increase employment and strengthen the economy.
Who will get the benefit
Let us tell you that this move allows long-term foreign investors (sovereign wealth funds and pension funds) to avail tax exemption on eligible investments made in India till March 31, 2030. Earlier, the Revenue Department of the Finance Ministry had extended the deadline for similar exemption by issuing a notification in July this year. This announcement was made by the government in this year’s Union Budget, which has now been formally implemented.
Under Section 10(23FE) of the Income Tax Act, which was implemented in the year 2020, special exemptions have been given to notified sovereign wealth funds (SWFs) and pension funds. According to this, if these funds invest in specified infrastructure businesses, they will not have to pay tax on dividends, interest and long-term capital gains from that investment. However, some industry experts said that this exemption should have been given for an even longer period, as infrastructure projects usually last for several decades.
What is the detail
Let us tell you that the effect of this tax exemption has been clearly visible in recent years. Direct investments by sovereign wealth funds (SWFs) and pension funds almost doubled from $3.797 billion in 2021 to $6.712 billion in 2022. According to NSDL data, assets under custody of such funds in Indian companies grew 60% year-on-year to Rs 4.7 lakh crore in the 12 months ended April 2024. So far, the government has notified about 35 sovereign wealth and pension funds for this tax exemption. These include big investors like Sama Foreign Holdings of Saudi Arabia, GIC and Temasek of Singapore, Kuwait Investment Authority, and Government Pension Fund of Norway.
