Guidelines under clause (23FE) of section 10 of the Income-tax

Guidelines under clause (23FE) of section 10 of the Income-tax Act, 1961 – Circular No. 9 of 2022

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;
   
   (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.
   
   (vi) inserted fifth proviso thereof providing that in case a domestic company, referred to in item (d) of sub-clause (iii), has investment of less than hundred percent in eligible infrastructure entity, income accrued or arisen to, or received by, or attributable to such investments, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the investment made in eligible infrastructure entity, in the prescribed manner.
   
   (vii) inserted sixth proviso thereof, providing that in case an NBFC, referred to in item (e) of sub-clause (iii), has lending of less than hundred percent in eligible infrastructure entity, income accrued or arisen to, or received by, or attributable to such lending, directly or indirectly, which is exempt under this clause shall be calculated proportionately to the lending in eligible infrastructure entity, in the prescribed manner.
   
3. The method for computation of eligible threshold of 50 per cent, 75 per cent or 90 per cent and exempt income under clause (23FE) of section 10 of the Act has been prescribed in rule 2DCA of the Income Tax Rules (the Rules) vide Notification No 50 of 2022 dated 6th May, 2022.
   
4. First proviso to clause (23FE) of section 10 of the Act provides that if any difficulty arises regarding interpretation or implementation of the provisions of the said clause, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty.
   
   In exercise of the powers under this proviso, Board, with the approval of the Central Government,
   hereby issues the following guidelines.

Relevant Update: 

• The Income–tax (Fifteenth Amendment) Rules, 2022.
• The Income-tax (Fourteenth Amendment) Rules, 2022.
• The Income-tax Amendment (Thirteenth Amendment) Rules, 2022.
• The Income-tax (Twelfth Amendment) Rules, 2022.
• The Income-tax (Eleventh Amendment) Rules, 2022.

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