The Budget has decided to extend tax benefits for sovereign wealth funds (SWFs) and pension funds investing in infrastructure assets by another five years. Additionally, exemptions on gains from unlisted debt securities held for over 24 months will now be provided, regardless of their short-term classification.
The tax exemptions on income earned through dividend, interest, and long-term capital gains from such investments will now be valid up to March 31, 2030. This extension comes after the initial introduction of the exemption in 2020 for three years, which was later extended until March 31, 2025.
“This extension will offer the stability and time frame needed for global investors to significantly contribute to India’s infrastructure development,” stated the Budget memorandum. The tax exemption for these investments will not be affected by the reclassification of gains from the sale of unlisted bonds and debentures as short-term capital gains.
According to Rajesh Gandhi, Partner at Deloitte India, this move addresses a key industry demand and will boost foreign investments in the infrastructure sector. Vinita Krishnan, Executive Director at Khaitan & Co, noted that the harmonized list of infrastructure will be expanded to potentially include certain shipbuilding activities, indicating further income tax exemptions for SWFs as the notified sectors generally align with the harmonized list.
Experts believe that there is still ample room for growth in the market in India for SWFs and pension funds, with significant potential for further investments. Global sovereign wealth funds increased their direct investments in India to $6.71 billion in 2022 from $3.79 billion in 2021, as reported by the Sovereign Wealth Fund Institute. Additionally, in 2023, both the UAE and Saudi Arabia expressed their intentions to invest $75 billion and $100 billion, respectively, in India.
