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In an effort to attract more global investments, Finance Minister Nirmala Sitharaman on Saturday announced an extension of the special tax exemption provided to sovereign wealth funds (SWFs) and pension funds investing in infrastructure by another five years.
The scheme, which was first launched in 2020 and was scheduled to lapse at the end of this financial year, will now be extended until March 31, 2030. The government had received suggestions to extend the benefits, given the long-term nature of infrastructure investments.
The scheme provides exemptions from income such as dividends, interest, long-term capital gains, and certain other incomes arising from investments in India. Additionally, the Budget offers clarity on certain investments in unlisted debt instruments by SWFs, which were previously treated as short-term capital gains "unintentionally."
"It is further proposed that in the case of such specified persons, exemption shall be available for long-term capital gains under the said section, even if such capital gains are deemed as short-term capital gains under section 50AA,” the Finance Minister said during the Budget speech.
Experts said the proposal will allow investors to adopt a long-term investment horizon and facilitate patient investment in the infrastructure sector.
"Budget 2024 had created a deeming fiction whereby the transfer or redemption of unlisted debentures held for the long term was treated as short-term capital gains. This had resulted in an unintended tax levy on such exempted SWFs and pension funds. Budget 2025 proposes to remove this anomaly. These amendments are proposed to be given retrospective effect," said Nirmal Nagda, partner at Deal Advisory, M&A and PE Tax, KPMG in India.
