In order to implement budget announcement post enactment of the Finance Act, Finance Ministry has notified extension of date of making investment by 40 sovereign wealth funds (SWFs) and pension funds (PFs) for another five years to avail tax exemptions,
Earlier, this exemption ended on March 31, 2025 but now the sunset date will be March 31, 2025. In other words, income earned on investment made till March 31, 2030 will get Income Tax exemption.
The funds which will get benefit include MIC Redwood 1 RSC Limited Abu Dhabi, United Arab Emirates-based SWF, Dagenham Investment Pte. Ltd, Singapore-based SWF, AIMCo India Infrastructure Limited, Canada pension plan investment Board, Caisse de dépôt et placement du Québec, Bricklayers Investment Pte. Ltd, Dagenham Investment Pte. Ltd.Norfund, Government of Norway beside others.
Clause (23FE) of section 10 of the Income Tax Act provides for the 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 it in India.
Specified persons includes SWF and PF which fulfils certain conditions and notified by the Central Government. One such condition says the assessee shall file return of income, for all the relevant previous years falling within the period beginning from the date in which the said investment has been made and ending on the date on which such investment is liquidated within the due date.
Another condition prescribes the assessee does not and shall not undertake any commercial activity whether within or outside India other than the said investment or investment of similar nature.
Also, the assessee shall have monitoring mechanism to protect the said investment with investee but shall not manage day to day operations of the investee or appoint executive directors in the investee company or participate in the decision making process or control them;
The mechanism was introduced through the Finance Act, 2020 to encourage investments of SWF and PF into infrastructure sector of India and prescribed investment is made on or after the April 1, 2020 but on or before March 31, 2025.
According to the explanatory memorandum of FY26 Budget, suggestions have been received that given the long-term nature of infrastructure investments and the role of foreign SWFs and PFs in financing such projects, the deadline for investment under clause (23FE) of section 10 be extended.
This will provide the stability and time frame necessary for global investors to make substantial contribution to India’s infrastructure development.
Further, the amendments by Finance Act 2024 have re-classified all the capital gains from unlisted debt securities as short-term capital gains, irrespective of the holding period.
This will result in the 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.
Finance Act 2025 prescribes long-term capital gains arising from an investment made by it 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, These amendments have been made effective from April 1, 2025.
Published on July 12, 2025