Long-term objectives to have funds replace Govt spending
The Finance Act, 2020, has introduced tax exemptions for Sovereign Wealth Funds (SWFs) and Pension Funds (PFs) for income in the nature of dividend, interest or long-term capital gains arising from investments made by them in India in infrastructure facilities, writes Nishith M. Desai of India’s global consultancy Nishith Desai Associates on 2 Feb 2021.
The Budget 2021-22, presented by Finance Minister Nirmala Sitharaman in parliament on 1 Feb 2021, has rationalised these provisions thereby giving an impetus to SWFs & PFs to make further investment into India.
Some of the measures include relaxation for Alternative Investment Funds (AIFs) investing into infrastructure facilities, extension of exemption to SWFs and PFs investing through Non-Banking Finance Company-Infrastructure Debt Fund / Infrastructure Finance Company (NBFC – IDC / IFC), allowing SWFs and PF to borrow & undertake activities for the purpose of monitoring its investment in India. The intent behind this move is to encourage long term stable capital participation from sovereign wealth funds, to replace Government spending in the creation of infrastructure assets and also foster economic relations with such countries.
On the infrastructure side, the FM recognizing the need for long term debt financing has proposed to introduce a bill to set up a professionally managed Development Financial Institution which will act as a provider, enabler and catalyst for infrastructure financing with the ambition of having a lending portfolio of at least Rs.5 trillion in three years’ time.
The Budget also proposes to make suitable amendment in the relevant legislation to allow debt Financing of InvITs and REITs by FPIs. This will further ease access of finance to InvITs and REITs thus augmenting funds for infrastructure and real estate sectors.
The Finance Act, 2020, had also abolished Dividend Distribution Tax (DDT) to introduce a dividend withholding regime. In furtherance of this move, the Budget proposed to provide that the advance tax liability on dividend income shall arise only after the declaration and payment of dividend and not on accrual.
Further, dividend payments to REIT (Real Estate Investment Trust) and InvIT (Infrastructure Investment Trust) have also been proposed to be exempted from withholding tax and lower withholding tax rates under the relevant treaty has now been proposed to be introduced for Foreign Portfolio Investors (FPIs).
Substantively, the Budget proposes a slew of amendments to the International Financial Services Centre (IFSC) to further ease operations in the IFSC and to incentivise setting up in the IFSC. These include introduction of a tax holiday for aircraft leasing companies, tax exemption for relocating offshore funds in the IFSC, tax exemption to investment divisions of foreign banks located in IFSC.
To further bolster the start-up ecosystem, the Budget proposes to extend the eligibility for claiming tax holiday and extend the capital gains exemption for investment in start-ups by one more year – 31 March 2022.
A long-standing demand of the industry has been that of allowing Indian companies to list abroad. While it was expected that the Budget would provide some clarity thereof, no such announcement has been made. #budget #banking #corporate #taxes #investment /fiinews.com
