Rule 288 — Procedure for setting up an Infrastructure Debt Fund for purpose of exemption under Schedule VII [Table: Sl. No. 46] to Act. Made under s.263, s.162 of the Income-tax Act, 2025.
Rule 288 gives effect to Section 263 and Section 162 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) requires every Infrastructure Debt Fund under this rule to be set up as a Non-Banking Financial Company conforming to and satisfying the conditions laid down in the regulatory framework provided by the Reserve Bank of India.
Sub-rule (2) confines its investments to post commencement operation date infrastructure projects which have completed at least one year of satisfactory commercial operations, or to toll-operate-transfer projects as the direct lender.
Sub-rule (3) sets out, in a Table, the three permitted ways of raising funds and the conditions on each. Rupee denominated bonds or foreign currency bonds must be in accordance with the directions of the Reserve Bank of India and the relevant regulations under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, and where the investor is a non-resident the original or initial maturity of the bond at the time of first investment by that investor must not be less than five years. Zero coupon bonds must be in accordance with rule 7 and carry the same five-year condition. Funds raised through the loan route under external commercial borrowings must be in accordance with the directions of the Foreign Exchange Department of the Reserve Bank of India, the tenor must not be less than five years, and the borrowings must not be sourced from foreign branches of Indian banks.
Sub-rule (4) caps investment in an individual project or a project belonging to a group at any time at 20% of the corpus of the fund. Sub-rule (5) bars investment in any project where the fund's specified shareholder, or the associated enterprise or the group of that specified shareholder, has a substantial interest.
Sub-rule (6) requires the fund to file its return of income as required by section 263(1)(a) on or before the due date specified in section 263(1)(c). Sub-rule (7) provides that if the fund does not fulfil any of the conditions in this rule or the directions of the Reserve Bank of India, all provisions of the Act apply as if it is not an Infrastructure Debt Fund referred to in Schedule VII [Table: Sl. No. 46].
Sub-rule (8) defines the terms: "associated enterprise" as in section 162; "concern" as in section 2(40); "corpus" as the total funds raised for the purpose of investment; "group" as in the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996; substantial interest as beneficial ownership of shares carrying not less than 10% of the voting power in a company, or beneficial entitlement to not less than 20% of the income of a concern other than a company at any time during the tax year; "relative" by an eight-limb list; and "specified shareholder" as a non-banking financial company, a bank or any other person holding, directly or indirectly, shares carrying not less than 30% of the voting power in the Infrastructure Debt Fund.
Schedule VII [Table: Sl. No. 46] exempts income of an Infrastructure Debt Fund, and an exemption of that kind has to be fenced or it becomes a general vehicle for tax-free lending. The rule sets the fence on four sides: what the fund must be, being a Reserve Bank regulated Non-Banking Financial Company; what it may lend to, being operating infrastructure projects with a year's satisfactory commercial operation behind them, or toll-operate-transfer projects as direct lender; how it may raise money, with a five-year floor wherever the money comes from a non-resident; and how far it may concentrate, at 20% of corpus per project or group. Sub-rule (7) makes every one of those conditions load-bearing.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Minimum operating history of a project the fund may invest in | At least one year of satisfactory commercial operations | Post commencement operation date infrastructure projects; the alternative is a toll-operate-transfer project as the direct lender | Sub-rule (2)(a) |
| Minimum maturity of a bond held by a non-resident investor | Not less than a period of five years | Original or initial maturity at the time of first investment by the non-resident investor; applies to rupee denominated and foreign currency bonds and to zero coupon bonds | Sub-rule (3), Table Sl. Nos. 1(b) and 2(b) |
| Minimum tenor of an external commercial borrowing | Not less than a period of five years | The borrowings must also not be sourced from foreign branches of Indian banks | Sub-rule (3), Table Sl. No. 3(b) |
| Concentration cap per project or group | Not exceeding 20% of the corpus of the fund | Investment in an individual project or project belonging to a group, at any time; corpus means the total funds raised for the purpose of investment | Sub-rule (4) |
| Substantial interest in a company | Not less than 10% of the voting power | Beneficial ownership of shares, other than shares entitled to a fixed rate of dividend, including holdings of relatives where the person is an individual | Sub-rule (8)(e)(i) |
| Substantial interest in a concern other than a company | Not less than 20% of the income of such concern | Beneficial entitlement at any time during the tax year | Sub-rule (8)(e)(ii) |
| Shareholding that makes a person a specified shareholder | Not less than 30% of the voting power in the Infrastructure Debt Fund | Held directly or indirectly by a non-banking financial company, a bank or any other person | Sub-rule (8)(g) |
| Date for filing the return of income | On or before the due date specified in section 263(1)(c) | The return required by section 263(1)(a); the rule points to the section and states no date of its own | Sub-rule (6) |
The 20% cap in sub-rule (4) is tested at any time and against the group, not just the project, so a fund cannot reach the same borrower group through several projects, and a fall in corpus can put an existing exposure over the line without any fresh investment. The five-year floor is a floor on maturity or tenor, not a holding requirement on the investor, and for bonds it is measured at the time of the non-resident's first investment. The related-party bar in sub-rule (5) has a wide entry point: a specified shareholder is anyone holding, directly or indirectly, shares carrying not less than 30% of the voting power, and substantial interest reaches down to 10% of voting power in a company or 20% of the income of another concern, with a relative's holdings counted in for an individual. The consequence of failure is not a partial disallowance — sub-rule (7) provides that all the provisions of the Act apply as if the entity is not an Infrastructure Debt Fund referred to in Schedule VII [Table: Sl. No. 46] at all, and it is triggered equally by breach of the Reserve Bank's directions.
An Infrastructure Debt Fund with a corpus of Rs. 500 crore may not have more than Rs. 100 crore invested at any time in one project or in projects belonging to one group. It issues rupee denominated bonds subscribed by a non-resident investor with an original maturity of six years, which satisfies the not-less-than-five-year condition. If it later lends to a project in which a shareholder holding 35% of its voting power holds 12% of the voting power, sub-rule (5) is breached and, under sub-rule (7), the Act applies to it as if it were not an Infrastructure Debt Fund at all.
The fund meets this rule in its own Reserve Bank compliance and in the terms of every bond issue or external commercial borrowing it raises; a reader meets it in the fund's return filed under section 263(1)(a) and in any assessment testing whether the Schedule VII exemption survives.
The investment made by the Infrastructure Debt Fund in an individual project or project belonging to a group at any time, shall not exceed 20% of the corpus of the fund.
In case the Infrastructure Debt Fund does not fulfil any of the conditions provided in this rule or directions of the Reserve Bank of India, all provisions of the Act shall apply as if it is not an Infrastructure Debt Fund referred to in Schedule VII [Table: Sl. No. 46] to the Act.