Centre lays down formula for infrastructure investment tax break

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NEW DELHI: The Central Board of Direct Taxes (CBDT) has brought out rules laying down the formula for computing infrastructure investments of sovereign wealth funds (SWFs) and pension funds that are eligible for income tax incentives, and the way of computing tax-exempt income attributable to these investments.

In the Income Tax Amendment (Thirteenth Amendment) Rules, 2022, brought out late on Friday, the CBDT explained how investors putting their money directly or indirectly in the infrastructure sector through companies, infrastructure investment trusts, alternative investment funds, infrastructure finance companies or infrastructure debt funds could compute their eligible investments on which tax break could be claimed.

Section 10 (23 FE) of the Income Tax Act exempts income earned from investments channelled into the infrastructure sector through these entities. Companies with two third investments in infrastructure are also eligible vehicles for this tax incentive.

The formula seeks to identify and compute the proportion of the investments through these vehicles which are eligible for full tax exemption on the income generated.

The tax incentive covers income which is in the nature of dividend, interest or long-term capital gains arising from investments made in India between 1 April 2020 and 31 March, 2024. There is a lock in period of three years for these investments to be eligible for the tax break.

The tax incentive introduced in the Income Tax Act by way of Finance Act 2020 has so far generated active interest from several SWFs and pension funds looking for long-term investment opportunities. India has been trying to create a financing stream for the infrastructure sector, which needed long term funds. Given that bank lending is for a short-term, long-term investors such as SWFs and pension funds help to fill the resource gap.

The government, too, has scaled up capital spending to provide a boost to the identified 7,000 infrastructure projects at a total cost of 111 trillion. Infrastructure creation is a key element of the central government’s economic recovery strategy.

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