Infrastructure, Tax Exemptions and FDI
The Infrastructure sector is a key driver for the Indian economy, and for any country as a matter of fact. This sector is majorly responsible for the county’s overall development. It enjoys intense focus from the Government. For example, the development of the first bullet train in Korea and Japan created a great boost for their economy. Singapore was an empty bare land. After they built their marvelous infrastructures like the Bay Area and Bedok, tourists started flocking in. China could never have achieved this much economic growth or the title of “the world’s factory” if it had lacked infrastructure.
The Indian government has been initiating policies to ensure time-bound creation of world-class infrastructure. These include power, bridges, dams, roads, and urban infrastructure development.
India ranked 44th out of 167 countries in the World Bank’s Logistics Performance Index (LPI) 2018. India ranked 2nd in the 2019 Agility Emerging Markets Logistics Index. Also, India ranked 63rd in the World Bank’s ease of doing business for the year 2019. This was a jump from the 74th position.
The Tax Reform
FM Nirmala Sitharaman had announced in Budget 2020, “In order to incentivize the investment made by the sovereign wealth fund of foreign governments in the priority sectors, I propose to grant 100% tax exemption to their interest, dividend and capital gains incomes in respect of investment made in infrastructure and other notified sectors before March 31, 2024, and with a minimum lock-in period of 3 years.”
CBDT (Central Board of Direct Taxes) announced a major reform on July 6. It notified tax exemption for SWFs’ (sovereign wealth funds) income from investment in the infrastructure sector. This shall take effect from April 1, 2021. Also, it shall be applicable for the AY 2021–22 and the subsequent AYs. The CBDT has widened the scope of ‘infrastructure’. This is for the sole purpose of claiming income tax exemption under Section 10 (23FE) of the I-T Act. (introduced via the Finance Act 2020)
The section provides a complete tax exemption on interest, dividend, and capital gain incomes of sovereign wealth funds (SWFs) and global pension funds arising from investment in Indian infrastructure. The said Section permits a complete tax exemption to certain exclusive categories of non-resident investors.
