Sovereign Wealth Funds, Pension Funds: One step away from the finish line

financialexpress.com:

By Hiren Shah and Alpa Shah

The infrastructure sector in India has been one of the focus areas for India’s economic growth and overall development. The government has taken various measures to boost infrastructure and investments in the said sector. One of such initiatives, to boost investment in infrastructure sector, was by the introduction (by the Finance Act, 2020) of an exemption provision by way of section 10(23FE) to the Income-Tax Act, 1961 (the Act).

The said section provides income tax exemption to specified funds, namely Abu Dhabi Investment Authority (subject to satisfying specified conditions) and other Central Government notified Sovereign Wealth Funds (SWFs) and Pension Funds (PFs), for certain income arising from investment made by it in India in debt or share capital or unit.

To reflect on the impact, it may be worthwhile to note that SWFs have increased their direct investments in India to US$ 6.712 bn in 2022 versus US$ 3.797 bn in 20211. This demonstrates significant growth in the investment in India by SWFs over the short period of time and it has been an important source of finance to assists infrastructure development of the country.

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Riding high on the wave of the global positive sentiment associated with Indian economy, the recent interim budget, while offering no changes in existing tax rates, announced an extension of the tax exemption under section 10(23FE) of the Act, for investments made by the specified funds including, SWFs and PFs. As per the extension provided to section 10(23FE) of the Act, income (in the nature of dividend, interest, long-term capital gains, etc.) from investments made by SWFs and PFs