The Income Tax Department has notified an amendment in rules for exemption, stating that Non-Banking Financial Company’s Infrastructure Debt Fund (IDF) raising money through External Commercial Borrowing (ECB) will now be eligible for Income Tax exemption.
Under the new notification, IDF can issue three categories of instruments to raise money. These include rupee denominated bonds or foreign currency bonds as per the directions of the Reserve Bank of India (RBI) and relevant regulations under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000. Additionally, zero coupon bonds and external commercial borrowings in accordance with the directions of the Foreign Exchange Department of the RBI are also allowed.
The notification also imposes certain conditions such as a minimum maturity of 5 years for bonds issued to non-resident investors and ECB. Moreover, borrowing cannot be sourced from foreign branches of Indian banks. A new condition has been added that prohibits IDF from investing in any project where its specified shareholder or associated enterprise has a substantial interest.
In terms of investment rules, IDF can only invest in post-commencement operation date infrastructure projects that have completed at least one year of satisfactory commercial operations. It can also be a direct lender in toll-operate-transfer (TOT) projects.
Furthermore, the notification defines a ‘specified shareholder’ as a non-banking financial company, a bank, or any other person holding shares carrying not less than thirty percent of the voting power in IDF.
This amendment comes at a time when the Finance ministry is urging banks and NBFCs to increase their participation in financing large-scale infrastructure initiatives to support India’s goal of achieving developed nation status by 2047.
The article was originally published on February 9, 2025.
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