Guidelines under clause 23FE of section 10 of the income tax act 1961
Circular No. 9/2022 was issued by the Central Board of Direct Taxes on 9 May 2022. Its subject is Guidelines under clause 23FE of section 10 of the income tax act 1961.
These are guidelines issued under a power in the section itself. Where a section says the Board may issue guidelines and that they bind, the guidelines carry more weight than an ordinary circular — read the enabling words before deciding which kind this is.
Introduces the Board's guidelines on the infrastructure investment exemption in clause (23FE) of section 10, after the Finance Act, 2021 widened it. The extract sets out that background: clause (23FE), inserted by the Finance Act, 2020, exempts dividend, interest and long-term capital gains earned by wholly owned subsidiaries of the Abu Dhabi Investment Authority, sovereign wealth funds and pension funds — the specified persons — on investment in Indian infrastructure made between 1 April 2020 and 31 March 2024, subject to conditions. The Finance Act, 2021 then amended item (c) of sub-clause (iii) to cover investment through Category I or Category II Alternative Investment Funds that invest in eligible infrastructure entities through domestic companies and non-banking finance companies, or in Alternative Investment Funds investing in an Infrastructure Investment Trust under section 2(13A)(i), and relaxed the requirement that such a fund invest wholly in eligible infrastructure entities or such a trust from 100 per cent to 50 per cent. It added item (d) for a domestic company set up and registered on or after 1 April 2021 with at least 75 per cent investment in eligible infrastructure entities, and item (e) for a non-banking financial company registered as an infrastructure finance company or an infrastructure debt fund with at least 90 per cent lending to them. Explanation 3 leaves the method of working out the 50, 75 and 90 per cent tests to be prescribed, and the fourth proviso requires the exemption to be apportioned where such an Alternative Investment Fund is invested less than wholly in eligible infrastructure entities or the trust.
To give effect to the Finance Act, 2021 relaxations meant to draw sovereign and pension fund money into Indian infrastructure, the working out of which needed guidance.
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Circular No. 9 of 2022
F. No.370142/2/2022-TPL
Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes (TPL Division)
Dated: 9th May, 2022
Sub.: Guidelines under clause (23FE) of section 10 of the Income-tax Act, 1961 - reg.
The Finance Act, 2020, inter-alia, inserted clause (23FE) in section 10 of the Income-tax Act,
1961 (hereinafter referred to as "the Act") to provide for exemption to wholly owned subsidiaries of
Abu Dhabi Investment Authority (ADIA), sovereign wealth funds (SWF) and pension funds (PF)
[these are referred as "specified person" hereinafter] on their income in the nature of dividend, interest
and long-term capital gains arising from investment made in infrastructure in India, during the period
beginning with 01.04.2020 and ending on 31.03.2024 subject to fulfilment of certain conditions.
2. In order to incentivise infrastructure investments by specified persons in India the Finance
Act, 2021, hereinafter referred to as "Finance Act", inter alia, amended the following provisions of
clause (23FE) of section 10 of the Act:
(i) amended item (c) of sub-clause (iii) thereof to allow exemption for investment by
specified person in Category I or Category II Alternative Investment Funds (hereinafter
referred as AIF) which invest in one or more of the companies, enterprises or entities as
referred to in item (b) (hereinafter referred to as "eligible infrastructure entity") through
domestic companies and Non-Banking Finance Companies or in AIFs investing in an
Infrastructure Investment Trust referred to in sub-clause (i) of clause (13A) of section 2 of
the Act (hereinafter referred to as InvIT). Further, the Finance Act also relaxed the
condition requiring an AIF to have investment in eligible infrastructure entity or InvIT
from 100% to 50%;
(ii) inserted item (d) in sub-clause (iii) thereof, to allow investment by specified person in
a domestic company set up and registered on or after 01.04.2021, having minimum 75 per
cent investments in eligible infrastructure entity;
(iii) inserted item (e) in sub-clause (iii) thereof, to allow investment by specified person in
a Non-Banking Financial Company registered as an Infrastructure Finance Company or in
an Infrastructure Debt Fund (hereinafter referred to as NBFC), having minimum 90 per
cent lending in eligible infrastructure entity;
(iv) inserted Explanation 3 thereof, to provide that the method for determination of 50 per
cent, 75 per cent or 90 per cent investment referred to in item (c), (d) or (e) of sub-clause
(iii) of the said clause (23FE) shall be prescribed by the Central Government;
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(v) inserted fourth proviso thereof, providing that in case of an AIF, referred to in item
(c) of sub-clause (iii), has investment of less than hundred percent in eligible
infrastructure entity or in InvIT, income accrued or arisen to, or received by, or
attributable to such investment, directly or indirectly, which is exempt under this clause
shall be calculated proportionately to the investment made in eligible infrastructure entity
or in InvIT , in the prescribed manner.
In the exemption claim of a notified fund in its return, and in an assessment or withholding application where dividend or interest paid to such a fund is questioned because the intermediate vehicle does not meet its percentage test.
It mentions. Circular No. 9/2022
Source: the Income Tax Department’s own published text — its page for this instrument.