The Budget has extended tax benefits to sovereign wealth funds (SWFs) and pension funds investing in infrastructure assets by five years, while providing exemptions on gains from unlisted debt securities held for over 24 months, regardless of their short-term classification.

Tax exemptions on income earned by way of dividend, interest and long-term capital gains arising from such investments will qualify for exemption up to March 31, 2030. Such an exemption was introduced in 2020 for three years and extended last year till March 31, 2025.

“This will provide the stability and time frame necessary for global investors to make substantial contribution to India’s infrastructure development,” the Budget memorandum said.

“The tax exemption will not be impacted due to reclassification of gains from sale of unlisted bonds and debentures as short term capital gains. This meets a key industry demand and will give a fill up to foreign investments in the infrastructure sector,” said Rajesh Gandhi, Partner, Deloitte India.

According to Vinita Krishnan, Executive Director, Khaitan & Co, the scope of the harmonised list of infrastructure will be expanded to include certain shipbuilding activities, indicating possible income tax exemptions as notified sectors for SWF exemption generally align with the harmonised list.

The market in India for SWFs and pension funds is still at a nascent stage and there is a lot of scope for further investments into India, said experts.

Global sovereign wealth funds increased direct investments in India at $6.71 billion in 2022 versus $3.79 billion in 2021, according to the Sovereign Wealth Fund Institute. In 2023, UAE and Saudi Arabia declared their intent to invest $75 billion and $100 billion, respectively in India.

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