To avail of tax exemption, the Finance Ministry has notified extension of date by another five years for investments made by 40 sovereign wealth funds (SWFs) and pension funds (PFs).
Earlier, this exemption ended on March 31, 2025, but now the sunset date will be March 31, 2025.
In other words, the income earned on investments made till March 31, 2030 will get tax exemption.
Clause (23FE) of Section 10 of the I-Tax Act provides for exemption to specified persons from the income in the nature of dividend, interest, long-term capital gains or certain other incomes arising from an investment made by the funds in India.
Riders ahead
Specified persons include sovereign wealth funds (SWFs) and pension funds (PFs) that meet certain conditions and are notified by the Union Government.
One condition requires the assessee to file I-T returns for all relevant years from the date of investment to its liquidation, within the prescribed due dates.
Another condition mandates that the assessee must not engage in any commercial activity in or outside India, apart from the specified or similar investments.
The assessee must also have a monitoring mechanism to safeguard the investment, but cannot manage the investee’s day-to-day operations, appoint executive directors, or participate in its decision-making or control.
The mechanism was introduced through the Finance Act, 2020 to encourage investments of SWFs and PFs in the infrastructure sector made on or after April 1, 2020 but on or before March 31, 2025.
Long-term nature
According to the explanatory memorandum of FY26 Budget, given the long-term nature of infrastructure investments and the role of foreign SWFs and PFs in financing such projects, it has been suggested that the deadline for investment under clause (23FE) of Section 10 be extended.
This will provide stability and the time frame necessary for global investors to make substantial contributions to India’s infrastructure development.
Further, the Finance Act 2024 has reclassified all capital gains from unlisted debt securities as short-term, regardless of the holding period.
This will result in long-term capital gains from investment in unlisted debt investments to be taxable in the hands of SWFs and PFs.
Prior to the said amendments, notified SWFs or PFs were eligible for exemptions on long-term capital gains from unlisted debt securities under clause (23FE) of Section 10.
The Finance Act 2025 prescribes that long-term capital gains arising from an investment made by the funds in India will not be included in the total income of a specified person under clause (23FE) of Section 10.
Also, the date of investment under the said clause will be extended to March 31, 2030 from March 31, 2025. These amendments have been made effective from April 1, 2025.
Some beneficiaries
Abu Dhabi-based MIC Redwood 1 RSC Ltd
Dagenham Investment Pte Ltd, Singapore
AIMCo India Infrastructure Ltd
Canada pension plan investment Board Caisse de dépôt et placement du Québec
Singapore-based Bricklayers Investment Pte Ltd
Norfund, Govt of Norway
.
Published on July 12, 2025
