The Central Board of Direct Taxes (CBDT) has extended the tax exemption window for sovereign wealth funds (SWFs) and pension funds investing in Indian infrastructure projects until March 31, 2030. Available under Section 10(23FE) of the Income Tax Act since 2020, the exemption covers income from dividends, interest, and long-term capital gains, giving global investors fiscal certainty and encouraging long-term commitments in India’s infrastructure space.
The exemption, first announced in the Union Budget and formalised via a July notification, targets large international investors, including SWFs from Saudi Arabia, Singapore, Kuwait, and Norway. By attracting stable capital, the policy aims to finance critical projects such as commercial real estate, logistics parks, data centers, and urban infrastructure, while indirectly benefiting domestic retail investors through mutual funds, InvITs, and REITs.
The original Section 10(23FE) scheme, effective from April 1, 2020, was designed to mobilise patient capital for long-gestation infrastructure projects. Under the law, eligible SWFs and pension funds are exempt from taxes on dividends, interest, and long-term capital gains from their investments in notified infrastructure sectors. This reduces the cost of capital and encourages consistent investment over time.
Aksha Kamboj, Executive Chairperson at Aspect Realty, highlighted that the extension reinforces investor confidence: “This extension provides stability for real estate and infrastructure, ensuring long-term foreign capital inflows. As InvITs and REITs grow, retail investors can also access these opportunities indirectly through mutual funds, benefiting from structured and transparent assets.” She noted that large foreign investments not only improve liquidity but also set benchmarks for governance and valuations in the sector.
Shweta Rajani, Head of Mutual Funds at Anand Rathi Wealth, said the move could temporarily boost liquidity in infrastructure-related instruments. “While the primary beneficiaries are large institutional investors, the trickle-down effect to retail investors may be limited and short-term,” she explained. Rajani cautioned that InvITs and REITs remain cyclical and may not always deliver strong risk-adjusted returns, noting past annual returns ranging from -7.7% to 9.9% between 2020 and 2024.
Abhishek Tharwani, Director at Tharwani Realty, added that the extension signals India’s commitment to attracting patient global capital for infrastructure and real estate. He explained that large-scale projects, including commercial and logistics assets, are more likely to attract foreign funding, which improves transparency, governance, and valuations. “The policy also allows retail investors to indirectly participate via mutual funds, widening access to global-grade real estate portfolios,” he said.
What are the implications
Aakanksha Shukla, AVP – Wealth Management at Master Capital Services, explained the broader implications:
Infrastructure financing: By extending the exemption to 2030, global investors gain long-term visibility, potentially directing billions into Indian infrastructure while lowering funding costs for long-gestation projects.
Domestic market impact: Increased foreign participation boosts investor confidence and governance standards, encouraging domestic institutions and mutual funds to invest in infrastructure, which may enhance liquidity and broaden participation.
Sustainability of incentives: While tax exemptions attract foreign capital, they have fiscal costs and may create disparities with domestic investors. To sustain such benefits, structural reforms and regulatory clarity are essential.
The policy’s impact is already visible. Direct investments by SWFs and pension funds nearly doubled to $6.712 billion in 2022 from $3.797 billion the previous year. Assets under custody in Indian companies rose 60% year-on-year to Rs 4.7 lakh crore in the 12 months ended April 2024.
Overall, extending the tax exemption strengthens India’s infrastructure ecosystem, attracts patient global capital, and indirectly opens investment opportunities for domestic retail investors through regulated channels such as mutual funds, InvITs, and REITs. By providing long-term visibility and improved governance, the measure is expected to deepen capital flows and enhance the overall investment climate in India’s infrastructure and real estate sectors.