Exemption to foreign funds investing in Indian infrastructure entities

Eligible Persons

The exemption is available to the following foreign entities:

(a) Sovereign Wealth Funds (SWFs) (Investment funds owned and controlled by the Government of a foreign country)

(b) Wholly owned subsidiaries of the Abu Dhabi Investment Authority (ADIA)

(c) Pension Funds created or established under the laws of a foreign country

(d) Public Investment Fund of the Government of the Kingdom of Saudi Arabia and its wholly owned subsidiary

Eligible Infrastructure Entities

Exemption is available on investments made in:

(a) Infrastructure Investment Trusts (InVITs)

(b) Enterprises engaged in developing, operating or maintaining infrastructure as defined in Section 80-IA(4)(i) or as notified by CBDT (‘Infrastructure Development Entities’)

(c) Domestic companies (registered on or after 01-04-2021) with ≥75% downstream investment in infrastructure development entities

(d) Infrastructure finance companies (NBFCs or an infrastructure debt fund with ≥90% lending to infrastructure development entities)

(e) Category I or II AIFs with ≥50% investment in the above entities, trust or funds.

CBDT Circular No. 9/2022, dated 09-05-2022, clarifies that the exemption applies even to secondary market investments or downstream investments through AIFs, finance companies, or investment companies.

Timeframe for Investment

Investments must be made between 01-04-2020 and 31-03-2030.

Mode of Investment

Investments must be in the form of:

(a) Debt

(b) Share capital

(c) Units

Qualifying Income for Exemption

The following income is exempt:

(a) Dividends

(b) Interest

(c) Long-term capital gains (even if deemed as short-term under Section 50AA)

(d) Any income received from InVITs in respect of units held

Minimum Holding Period

The investment must be held for at least 3 years to avail of the exemption.

Withdrawal of Exemption

If the conditions of eligibility or investment are violated in any year, the exemption claimed in previous years shall be withdrawn and deemed as income in the year of violation.

Computation of Exempt Income

(a) Infrastructure Development Entities: Entire income is exempt. However, Circular No. 9, dated 09-05-2022, clarified that for hybrid infrastructure entities (with multiple business lines), exemption is available proportionately if ≥ 50% of the total profit before tax (PBT) arises from eligible infrastructure activity. Exempt income will be calculated proportionately to the hybrid entity’s PBT from infrastructure activities to its total PBT.

(b) InVITs: Exemption is available on all income received by the eligible person, including income passed through by the InVIT, irrespective of its taxability in the hands of the trust.

(c) Infrastructure Investment Companies: Exemption is allowed if ≥ 75% of their investments are in infrastructure development entities. Proportionate exemption is computed as per Rule 2DCA.

(d) Infrastructure Finance Companies: Exemption applies if ≥ 90% of lending is to infrastructure development entities. Proportionate computation and reporting are followed as per Rule 2DCA.

(e) Infrastructure AIFs: Exemption is granted if ≥ 50% of investments are in infrastructure entities, investment companies, finance companies, or InVITs, subject to Rule 2DCA compliance.