Section 10(23FE) of the Income Tax Act provides a tax exemption for certain types of income earned by a specified person—such as a Sovereign Wealth Fund (SWF), Pension Fund, or a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA)—from investments made in India’s infrastructure sector.
What’s Exempt:
- Dividend income,
- Interest income, and
- Long-term capital gains, arising from investments made between 1st April 2020 and 31st March 2024, and held for at least 3 years2.
Who Qualifies as a “Specified Person”:
- A wholly owned subsidiary of ADIA,
- A notified Sovereign Wealth Fund, or
- A notified Pension Fund, subject to conditions like being a resident of a foreign country, not engaging in commercial activity in India, and being regulated by the foreign government.
Eligible Investments:
The exemption applies to investments in:
- Indian companies or enterprises engaged in infrastructure business (as per the Harmonised Master List),
- Infrastructure Investment Trusts (InvITs),
- Category I or II AIFs investing in infrastructure,
- NBFCs registered as Infrastructure Finance Companies or Infrastructure Debt Funds,
- Domestic companies with 75%+ investments in infrastructure.
Example:
Suppose Global Pension Fund, a notified foreign pension fund, invests ₹500 crore in an Indian InvIT focused on renewable energy in FY 2022–23. It earns ₹30 crore in interest and ₹20 crore in long-term capital gains by FY 2025–26. Since:
- The investment was made within the eligible window,
- The fund is a notified “specified person,” and
- The holding period exceeds 3 years,
the entire ₹50 crore is exempt under Section 10(23FE).
