Source: The Economic Times
New Delhi: The government has extended the tax exemptions for sovereign wealth funds (SWFs) and pension funds by another five years. These funds will be able to claim tax exemptions on eligible investments they have made in India until March 31, 2030.
The decision was announced Saturday by the Department of Revenue. Saturday’s order follows the government mentioning the proposal in the Union Budget earlier this year with the intent to attract long-term foreign capital to build India’s infrastructure and important sectors.
What the Tax Exemption Covers.
Under the Income Tax Act Section 10(23FE), the government introduced the tax incentive in 2020. It allows certain SWFs and pension funds to receive tax relief on income that they earn through:
- Dividends
- Interest
- Long-term capital gains
The tax exemption currently applies to investments made in specific infrastructure sectors including roads, power, ports, telecom, etc. The tax exemption was previously going to end in March 2025 but is now extended to March 2030.
More Money Comes In
This tax exemption has incentivized increased foreign investment in Indian infrastructure. According to reports, direct investment by sovereign wealth funds (“SWFs”) and pension funds rose from $3.8 billion in 2021 to $6.7 billion in 2022.
At the end of April 2024, assets in the custody of sovereign wealth funds in Indian companies grew by 60% on a year-on-year basis, reaching ₹4.7 lakh crore, according to data from the National Securities Depository Limited (“NSDL”).
To date, the government has approved approximately 35 foreign funds to take advantage of this exemption, including:
- GIC and Temasek (Singapore)
- Kuwait Investment Authority
- Norwegian Pension Fund
- Sama Foreign Holdings (Saudi Arabia)
- Specialist Insights
Experts supported the extension, noting that it draws more stable long-term capital to India. Some, however, feel that the benefit should last even longer.
“While it’s a move that will be welcomed by the infrastructure sector and infrastructure funds, given the long haul of these projects and India’s long-term aspirations, the extension should have been considered for a longer duration as the investment needs are most likely not to be met in one year,” Sunil Gidwani, partner-financial sector at Nangia Andersen LLP, was quoted as saying by ET in July 2024.
Why This is Important
India has several major infrastructure initiatives in the works, such as the National Infrastructure Pipeline and PM Gati Shakti. For infrastructure projects of this scale, long-term capital is critical. By extending the tax exemption, the government hopes to stimulate foreign capital and support India’s development objectives.
