Government provides a tax break to pension funds to encourage infrastructure spending
As part of efforts to pull the economy out of its slump, the income tax department has given tax exemptions to four pension funds for earnings from infrastructure projects in India.
Investments made before March 2024 are eligible for the tax break. The aim is to assist in the financing of some of the nearly 7,000 projects in the national infrastructure pipeline.
The tax department issued separate notices to Canadian pension funds CDPQ Fixed Income XI Inc., Ivanhoe Logistics India Inc., CDPQ Infrastructures Asia III Inc., and Caisse de dépôt et placement du Québec for their investments in India. Filing income tax returns in India and quarterly declaration of investments are among the requirements. The investments have a three-year lock-in term.
The government had previously granted the same relief to MIC Redwood 1 RSC Ltd, the UAE’s sovereign wealth fund, in order to raise infrastructure investments in the region.
In India, investors are exempt from paying taxes on interest, dividends, and long-term capital gains produced by their investments. The tax breaks provided to these organisations show that sovereign wealth funds and pension funds are interested in India’s infrastructure market. The estimated cost of the listed projects totals more than Rs100 trillion.
The Narendra Modi administration is banking on infrastructure projects having a multiplier impact in terms of generating new employment and reviving the economy. As a result, the Centre has increased its capital investment. The Union budget for FY22 proposed a sharp 26% increase in capital investment to Rs5.54 trillion in FY22, compared to the previous year.
The finance ministry announced in April that it would provide states with Rs15,000 crore in long-term loans to meet their capital spending needs. This includes Rs5,000 crore to encourage states to monetize their idle assets and sell their company stakes. In addition, the Centre is implementing a privatisation strategy aimed at bringing more private capital into various industries.
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