Abu Dhabi's Sovereign Wealth Fund gets total income tax exemption for infra investment

Abu Dhabi’s Sovereign Wealth Fund (SWF), MIC Redwood 1 RSC Limited, has become the first foreign sovereign wealth fund to receive 100% income tax exemption for making long term investments in the country’s infrastructure sector, ETV Bharat has learnt.

New Delhi:Abu Dhabi’s Sovereign Wealth Fund (SWF), MIC Redwood 1 RSC Limited, has become the first foreign sovereign wealth fund to receive 100% income tax exemption for making long term investments in the country’s infrastructure sector, ETV Bharat has learnt.

In order to incentivise long-term investment by the sovereign wealth funds of the foreign governments, the government had granted 100% income-tax exemption to income of a notified sovereign wealth fund (SWF) in the specified infrastructure sectors through the Finance Act of 2020.

The MIC Redwood 1 RSC Limited of Abu Dhabi has been provided 100% income-tax exemption to income from interest, dividend and long-term capital gains for its investment in India’s priority sector as per the Finance Act of 2020. The CBDT issued the notification on Monday.

In July this year, the CBDT issued detailed guidelines to facilitate the process of SWFs’ notification. Notified foreign Pension Funds were also granted similar exemption subject to fulfilment of certain prescribed conditions.

Ease of doing business: Tax exemption granted in record time

“In order to expedite foreign investment in India’s priority areas during the Covid pandemic time, the process of notification of the MIC Redwood 1 RSC Limited was completed in a record time,” an official closely involved with the matter told ETV Bharat.

On September 18 2020, nearly a month after the CBDT’s notification, MIC Redwood 1 RSC Limited made an application to the Government of India seeking tax-exemption as per the CBDT guidelines.

An official said due the challenges posed by the Covid-19 global pandemic, all deliberations and meetings between the applicant and tax authorities were held virtually through video links, and the entire communication process was completed electronically.

The MIC Redwood 1 RSC Limited submitted its final replies on October 20.

Officials in the finance ministry said the entire process of notification, including consultation with Ministry of Law & Justice for legal vetting of the notification, was completed in less than two weeks.

“With the completion of all legal and other formalities the notification granting 100% tax-exemption was issued on 2nd November 2020,” said a source.

India’s woos foreign investors

In order to attract long-term capital, also known as patient capital, the government has gradually opened up the economy for foreign direct investment (FDI) in recent years. And, it also extended several tax concessions to sovereign wealth funds (SWFs) to attract long-term capital in the infrastructure sector.

“This 100% income-tax exemption facility was well received by the SWFs and Pension Funds across the globe and a large number of SWFs and Pension Funds have shown interest in making investment in India’s infrastructure sector,” said a source.

India needs $1.4 trillion investment in infra sector

According to the Economic Survey of FY 2019-20, the country needs investment of $1.4 trillion in the infrastructure sector during 2020-2025, mostly in roads, highways, ports and airports, to achieve the target of becoming a $5 trillion economy.

The challenge is to step-up annual infrastructure investment so that lack of infrastructure does not become a binding constraint on the growth of Indian Economy, the Survey had said.

Citing a report of the Task Force on National Infrastructure Pipeline, the Survey said an investment of Rs 102 lakh crore in the country's infrastructure sector is required in next five years.

The income-tax exemption to SWFs and the Pension Funds is expected to provide much needed foreign funding to the infrastructure sector and will go a long way in boosting the growth in the infrastructure sector, said a source.

The Centre issued a notification on July 6, 2020 to broaden the scope of this exemption and made all sub-sectors of Harmonised Master List (HMS Codes) of the infrastructure sector eligible for the income-tax exemption.

(Article by Krishnanand Tripathi)