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Sovereign wealth funds' investments on infra to get 100% tax exemption

BusinessToday.In     February 1, 2020

Union Finance Minister Nirmala Sitharaman, during her Budget 2020 speech on Saturday, announced major tax concession on investments by sovereign wealth funds. The FM proposed to grant 100 per cent exemption on interest, dividend and capital gains income on investment made in infrastructure and other notified sectors. The timeline for availing this benefit has been fixed at March 31, 2024, with a minimum lock-in period of three years.

The Modi government has also decided to make foreign funds available at a lower cost, which will boost foreign direct investment in India. "I propose to extend the period of concessional withholding rate of 5% under section 194LC for interest payment to non-residents in respect of moneys borrowed and bonds issued up to 30th June, 2023," the minister said.

She also announced to extend the period for lower rate of withholding of 5 per cent under section 194LD for interest payment to Foreign Portfolio Investors (FPIs) and Qualified Foreign Investors (QFIs) on bonds issued by Indian companies and government securities by up to June 30, 2023.

The concessional rate of withholding of 5 per cent -- under section 194LD -- to the interest payment made on the municipal bonds has also been extended. To incentivise listing of bonds at the International Financial Services Centre exchange, the government has reduced the withholding rate from 5 per cent to 4 per cent on interest payment on the listed bonds.

FDI helps improve the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the US dollar. Foreign direct investment into India grew 15% to $26 billion during the first half of the current financial year, according to government data. Inflow of FDI during April-September of 2018-19 stood at $22.66 billion. Sectors, which attracted maximum foreign inflows during April-September 2019-20, include services ($4.45 billion), computer software and hardware ($ 4 billion), telecommunications ($4.28 billion), automobile ($2.13 billion) and trading ($2.14 billion).

FULL COVERAGE: Union Budget 2020

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