Exemption in respect of certain income of wholly owned subsidiary of Abu Dhabi Investment Authority and of Sovereign Wealth Fund [Section 10(23FE)]

Income Tax Concept
Exempted Incomes-Section 10(23FE)

Section 10(23FE) of the Income Tax Act provides an exemption in respect of certain income of wholly owned subsidiaries of Abu Dhabi Investment Authority (ADIA) and Sovereign Wealth Funds (SWFs). This exemption aims to encourage foreign investment and promote economic growth in India.

Key Provisions

Under Section 10(23FE), the following conditions must be satisfied for the exemption to apply:

  • The subsidiary must be wholly owned by ADIA or a SWF.
  • The subsidiary must be engaged in the business of infrastructure debt fund or infrastructure investment trust.
  • The subsidiary must fulfill the conditions specified by the Central Government.
  • The subsidiary must obtain a certificate from the Department of Economic Affairs, Ministry of Finance, Government of India, confirming that it meets the above conditions.
  • The specified person (i.e., the wholly owned subsidiary of ADIA, sovereign wealth fund, or pension fund) must invest in India in the form of debt or share capital or unit.
  • The investment must be held for at least 3 years.
  • The income must be in the nature of dividend, interest, or long-term capital gains.
  • The income must be attributable to the investment in India.
  • This exemption is available for investments made in India during the period beginning with April 1, 2020 and ending on March 31, 2024.

The aim of this exemption is to attract foreign investment in India, particularly in the infrastructure sector.

The income of a wholly owned subsidiary of ADIA or a SWF includes income from all sources, such as:

  • Business income
  • Investment income
  • Rental income
  • Royalty income
  • Other sources of income
See also  Agricultural Income [Section 10(1)]

The exemption under Section 10(23FE) is available for the following period:

  • From 1st April, 2020 to 31st March, 2024

Incomes eligible for Exemptions:

Here are some examples of income that would be exempt from tax under Section 10(23FE):

  • Dividends received by a wholly owned subsidiary of ADIA or a SWF from an Indian company.
  • Interest income received by a wholly owned subsidiary of ADIA or a SWF from an Indian bank.
  • Rental income received by a wholly owned subsidiary of ADIA or a SWF from a property located in India.
  • Royalty income received by a wholly owned subsidiary of ADIA or a SWF from a license granted to an Indian company.
  • Interest income received by a sovereign wealth fund from its investment in Indian government bonds.
  • Long-term capital gains realized by a pension fund from the sale of its shares in an Indian company.
·         The Abu Dhabi Investment Authority is a globally renowned sovereign wealth fund that manages funds on behalf of the Government of Abu Dhabi. It has established wholly owned subsidiaries in various countries, including India. The income earned by these subsidiaries is eligible for exemption under Section 10(23FE) of the Income Tax Act.

·        Similarly, Sovereign Wealth Funds (SWFs) established by foreign governments are also eligible for tax exemptions on certain types of income under Section 10(23FE). These funds invest in various sectors and contribute to the economic growth of the host country.

Conclusion

The exemption provided under Section 10(23FE) of the Income Tax Act is a significant step towards attracting foreign investment and promoting economic growth in India. By incentivizing wholly owned subsidiaries of ADIA and SWFs to invest in infrastructure projects, the government aims to boost development and create employment opportunities. This exemption not only benefits the subsidiaries but also contributes to the overall growth and prosperity of the country.

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