Abu Dhabi sovereign fund first to get 100% tax exemption in infra

The government, under the Finance Act, 2020, had allowed tax exemption for SWFs and pension funds in the case of incomes from investment in 34 key infrastructure sectors, including hotels, cold chains, educational institutions, hospitals, and gas pipelines.

In line with the Budget announcement, the government has allowed income-tax exemption to Abu Dhabi’s sovereign wealth fund (SWF), MIC Redwood 1 RSC, for making long-term investments in India in specified priority sectors of infrastructure.

It is the first foreign SWF to get 100 per cent tax exemption in the case of income from interest, dividend, and long-term capital gains for its investment in infrastructure.

The Central Board of Direct Taxes (CBDT) on Monday announced this.

The government, under the Finance Act, 2020, had allowed tax exemption for SWFs and pension funds in the case of incomes from investment in 34 key infrastructure sectors, including hotels, cold chains, educational institutions, hospitals, and gas pipelines.

Under the scheme, investment has to be made before March 31, 2024 and with a minimum lock-in period of three years.

“Any income in the nature of dividend, interest, or LTCG (long-term capital gains) arising from an investment made by Abu Dhabi’s SWF on or after November 2, 2020, but on or before March 31, 2024, shall be entitled to exemption if specified conditions are met,” said a government official.

The sub-sectors under the scheme include infrastructure for special economic zones, textile parks and agriculture markets, telecom towers, electricity generation, and transmission and distribution, besides ports and airports.

The other areas include ports, stadiums, tourism, theme-based parks including food parks,multi-modal logistics parks, and textile parks.

Under the scheme, the government will incentivise investors to invest directly or through vehicles such as alternative investment funds or infrastructure investment trusts.

The CBDT had issued a detailed notification of the scheme in July. MIC Redwood 1 RSC applied for tax exemption on September 18.

“Amid the challenges of Covid-19, all deliberations and meetings between the applicant and tax authorities were held virtually and communications were made only through emails. MIC Redwood 1 RSC submitted its final replies on October 20 and after that the process of notification, including consultations with the Ministry of Law and Justice for legal vetting of the notification, etc. have been completed in less than two weeks,” said the official.

The taskforce on the National Infrastructure Pipeline (NIP) for 2019-25 has estimated investment requirements at Rs 111 trillion in infra projects to achieve the target of becoming a $5 trillion economy by FY25.

Sectors such as energy (24 per cent), roads (18 per cent), urban (17 per cent) and railways (12per cent) amount to around 71 per cent of the projected infrastructure investments in India.