Govt gives tax break to pension funds to aid infra investment

The tax break is applicable for investments made till March 2024. The idea is to help finance some of the nearly 7,000 projects that are part of the national infrastructure pipeline.

In separate notifications, the tax department offered the tax relief 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 subject to riders. The conditions include filing income tax returns in India and quarterly disclosure of investments here. There is a three-year lock-in period for the investments.

The government had earlier given the same relief to UAE’s sovereign wealth fund MIC Redwood 1 RSC Ltd to boost infrastructure investments in the country.

Investors get full tax exemption on income from interest, dividend and long-term capital gains arising from their investments in India. The tax breaks granted to these entities indicate the interest sovereign wealth funds and pension funds have in India’s infrastructure sector. The pipeline of identified projects have a total cost of over Rs100 trillion.

The Narendra Modi administration is betting on the multiplier effect infrastructure investments could deliver in creating new jobs and in turning the economy around. The Centre has accordingly scaled up its capital spending. The Union budget for FY22 proposed a sharp 26% jump in capital spending in FY22 to Rs5.54 trillion over what was spent in the year before.

In April, the finance ministry said it will give Rs15,000 crore long-term loans to states for their capital spending requirements. This includes Rs5,000 crore for incentivizing states to monetize their idle assets and to divest the stake in their companies. The Centre is also pursuing a privatization plan aimed at ushering in more private capital into different sectors.