Funds 2024: Continuity of SWFs/ PF tax advantages by extending sundown clause to 31 March 2025 – Augurs nicely for Infrastructure Sector

The Finance Minister offered the Interim Funds 2024 on the ground yesterday. One of many foremost focus areas of the Indian Authorities is ‘Infrastructure and Funding’.
Much like Union Budgets for the previous few years, on this Funds additionally the Indian Authorities appears to be targeted on growth of infrastructure. Over the previous 4 years, the Authorities has tripled its capital expenditure. The Interim Funds 2024 allocates a formidable outlay of greater than ₹11 lakh crore (Y-O-Y enhance of round 11.1%) for the upcoming 12 months, constituting approx. 3.4% of the GDP.

The Funds 2024 additionally acknowledges the significance of Inexperienced Vitality and numerous initiatives are proposed to be taken to satisfy the goal of ‘internet – zero’ by 2070, resembling viability hole funding for offshore wind vitality potential for 1 GW, objective of coal gasification and liquefaction capability of 100 MT by 2030, and many others. These initiatives are geared toward implementation of India’s local weather motion plans and bold enlargement of non-fossil gasoline capability which has greater than doubled in final 9 years, growing from 80.3 GW in March 2014 to 187. 06 GW in November 2023.

DETAILED BUDGET ANALYSIS HERE
Whereas the Indian Authorities has proposed the next allocation to infrastructure sector, non-public funding in numerous infrastructure tasks (greenfield or brownfield) will equally be important. The Sovereign Wealth Funds (SWFs) & Pension Funds (PFs) (the funding automobiles and funds setup by abroad authorities) have been taking part in a really important position in financing infrastructure tasks. The Indian authorities has acknowledged this participation and a provision of long run and regular circulation of capital by SWFs / PFs was launched as a tax incentive in Funds 2020 to supply tax exemption for numerous streams of earnings earned by PFs/ SWFs like curiosity, dividend, and capital positive aspects via Part 10(23FE) of the Revenue Tax Act, 1961.Whereas there are host of situations, resembling SWF and Pension Funds ought to be notified by Central Board of Direct Taxes (‘CBDT’), funding ought to be held for greater than three years, and many others., one of many vital situations for such tax exemption was that the investments ought to be made by SWF and Pension Funds earlier than 31 March 2024.There was an enormous expectation from the Authorities that this exemption might be prolonged contemplating the numerous want for funds in infrastructure sector. In a welcome transfer, the Indian Authorities has appreciated this requirement and proposed continuity of the tax exemption to qualifying investments made earlier than March 2025 (authentic tax exemption was restricted to investments made earlier than 31 March 2024) with out ready for full funds in July 2024.All is nicely, says Nirmala Sitharaman as she rubbishes claims of ‘Okay-shaped’ development in India

This extension of the tax exemption would supply a lot wanted readability to SWFs and PFs as they consider their future investments within the Indian infrastructure sector and positively act as a catalyst. Many have been questioning whether or not the tax exemption to SWFs / PFs can be prolonged within the interim funds, contemplating that the Finance Minister has beforehand talked about that no main modifications might be proposed within the interim funds. Whereas the Finance Minister did keep heading in the right direction together with her statements, she prudently differentiated the need of the long run and affected person funding from SWFs/ PWFs, which may play a pivotal position in infrastructure tasks.

The topic extension of tax exemption is a step in proper course and would additional the Indian Authorities’s efforts to encourage sustained circulation of personal funds within the infrastructure house in India, which in flip would give a flip to the general Indian financial system.

Kalpesh Maroo is Accomplice and Head, M&A and PE Tax, KPMG in India and Nirmal Nagda is Accomplice, M&A and PE Tax, KPMG in India. With inputs from Digesh Shah, Chartered Accountant

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