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The government has extended tax exemptions given to investments made by sovereign wealth (SWFs) or pension funds by a year to March 31, 2025.
In 2020, the government had introduced a new section 10 (23FE) to provide notified sovereign and pension funds, an exemption from dividend, interest and long-term capital gains income earned from investments made in specified infrastructure businesses from April 1, 2020, to March 31, 2024.
“The policy aims to encourage long-term investments in critical infrastructure projects, aligning with the government’s infrastructure development focus,” said Sunil Gidwani, Partner, Nangia Andersen.
“The Finance Minister has reinstated the faith of SWFs and pension funds by extending the sunset clause by a year. This should provide a fillip to the infrastructure sector, in line with the government’s roadmap to increase infra spends,” added Tushar Sachade, Partner, Price Waterhouse & Co.
Sops for GIFT IFSC
Similarly, expiring tax incentives for certain IFSC businesses are also being extended by a year.
The tax exemption for specific income of non-resident IFSC banks, previously applicable only to investment operations that commenced by March 31, 2024, has now been extended by a year. This will encourage banks to set up their investment banking divisions at GIFT IFSC.
“The extension aims to encourage both new and existing IFSC banks in GIFT City to expedite the establishment and launch of their investment divisions, benefiting from perpetual tax exemption,” said Jaiman Patel, Partner, EY India.
Banks are allowed to do lending, investment banking and other activities at IFSC. Investment banks can invest in Indian debt securities, foreign securities, IFSC securities and securitisation trust receipts, and issue participatory notes. So far, only two banks — Standard Chartered Bank and HSBC — have set up their investment banking divisions at GIFT IFSC.
Likewise, to foster the growth of aircraft and ship leasing companies within GIFT IFSC, the deadline for these entities to initiate operations and avail withholding tax exemption on interest and royalty payments to non-residents (on a perpetual basis) has now been extended to March 31, 2025.
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The tax holiday for various businesses in IFSC do not have a sunset clause. However, aircraft and ship leasing businesses were required to commence operations by March 31, 2024, to avail of the tax benefits.
The sale of an aircraft or a ship by a leasing company may result in gains for such a company. Further non-resident investors in such a company may earn interest or royalty.
“The extension should provide some breather to these entities to set up business at GIFT City,” said Gidwani.
Bilateral treaties
The government is negotiating bilateral investment treaties with different countries on the ‘First Developed India’ principle. This should boost foreign investments into India but more details are awaited, said experts.
There is a status quo on the effective withholding tax for FPIs on rupee-denominated bonds, currently at 20 per cent.
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