Income of a Notified Institution established for Financing Infrastructure and Development to be Exempt [Section 10(48D)]

Under Section 10(48D), the income of a Notified Institution is exempt from income tax

A Notified Institution refers to any entity or body corporate established by the Central Government or State Government for the purpose of financing infrastructure and development. These institutions play a crucial role in mobilizing funds for infrastructure projects such as roads, railways, airports, power plants, and other essential facilities.

The Central Government may notify an institution as an institution established for financing infrastructure and development, if it is satisfied that the institution:

  • Is established under a Central Act or a State Act;
  • Has been established for the purpose of financing infrastructure and development projects; and
  • Is carrying on its activities in accordance with the provisions of the Act under which it is established.

The following institutions have been notified as institutions established for financing infrastructure and development, under Section 10(48D):

  • National Bank for Financing Infrastructure and Development (NBFID)
  • Infrastructure Investment Trust (InvIT)

Under Section 10(48D), the income of a Notified Institution is exempt from income tax. This includes any income derived from the financing of infrastructure projects, such as interest, dividends, capital gains, and other similar sources.

The exemption applies to both the principal amount and the interest earned on any loans or advances provided by the Notified Institution for infrastructure and development purposes.

The exemption is available for a period of 10 years from the date of commencement of operations of the institution.

The following types of income are exempt under Section 10(48D):

  • Income from interest on loans and advances made to companies engaged in infrastructure development;
  • Income from dividends received from companies engaged in infrastructure development;
  • Income from the sale of shares and debentures of companies engaged in infrastructure development;
  • Income from the sale of land and buildings to companies engaged in infrastructure development;
  • Income from the provision of technical services to companies engaged in infrastructure development.
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Example

Suppose the National Bank for Financing Infrastructure and Development (NBFID) is notified by the Central Government as an institution established for financing the infrastructure and development. The NBFID makes a loan to a company that is engaged in the construction of a new highway. The interest income that the NBFID earns on this loan is exempt from income tax under Section 10(48D).

Conditions for Exemption

To qualify for the exemption under Section 10(48D), the Notified Institution must fulfill certain conditions:

  • The institution must be notified by the Central Government or State Government.
  • The primary objective of the institution must be financing infrastructure and development projects.
  • The institution must comply with any other conditions specified by the government.

Benefits of the Exemption

The exemption provided under Section 10(48D) offers several benefits:

Encourages investment:

The exemption encourages investment in infrastructure projects by providing tax relief to the Notified Institutions. This, in turn, helps in attracting more funds for development activities.

Promotes economic growth:

Infrastructure development is crucial for economic growth. By exempting the income of Notified Institutions, the government incentivizes investment in this sector, leading to improved infrastructure and overall economic development.

Attracts foreign investment:

The tax exemption makes infrastructure projects more attractive to foreign investors. It enhances the competitiveness of Indian infrastructure projects and increases the chances of foreign funding.

Facilitates fundraising:

Notified Institutions can raise funds at a lower cost as they are exempt from income tax. This enables them to offer competitive interest rates and attract more investors.

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Examples of notified institutions

Some examples of notified institutions that are eligible for exemption under Section 10(48D) include:

  • National Bank for Financing Infrastructure and Development (NBFID)
  • Indian Renewable Energy Development Agency (IREDA)
  • Rural Electrification Corporation (REC)
  • Housing and Urban Development Corporation (HUDCO)
  • National Housing Bank (NHB)

How to claim the exemption

If you are a notified institution that is eligible for exemption under Section 10(48D), you need to file an income tax return and claim the exemption in the return. You will also need to submit the necessary documentation to support your claim.

Conclusion

The exemption provided to institutions established for financing infrastructure and development under Section 10(48D) is a valuable incentive that helps to promote the development of infrastructure and development in India. Infrastructure and development is essential for economic growth and social progress. By providing tax benefits to institutions that finance infrastructure and development, the government is helping to build a better future for India.

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