World's largest sovereign fund makes provision for India capital gains

Norway fund has investments across sectors in India, shows latest disclosures

The Norwegian sovereign wealth fund, the largest in the world, has put aside an 11-figure sum for paying taxes on gains made through its India investments.
 
“Since 2019, the fund has recognised a provision for future tax obligations relating to capital gains in India. This reduced the relative result in 2020 by 1,844 million kroner,” said the sovereign fund’s latest annual disclosure. This translates into Rs 1,670 crore, adjusting for currencies at the latest exchange rates.
 
The total value of its India holdings is Rs 89,801.6 crore. The fund has invested in 317 companies that are incorporated in India. The sectors it has invested in include industrials, basic materials, financials, utilities, consumer goods, health care, consumer services, oil and gas, telecommunications, and technology.
 

It was unclear if the provision was for the profit it had already booked and expected to pay a tax on, or capital gains on investments it had made but not yet exited. The government introduced a 10 per cent capital gains tax on share market investments in 2018. 

“I propose to tax such long-term capital gains exceeding Rs 1 lakh at the rate of...(10 per cent)...without allowing the benefit of any indexation. However, all gains up to January, 31, 2018, will be grandfathered,” the then finance minister, Arun Jaitley, had said in his Budget speech.
 
The speech had mentioned that the total amount of exempted capital gains on listed shares and units for assessment year 2017-18 was Rs 3.67 trillion. It had grandfathered gains made up to January 2018.
 
“In view of grandfathering, this change in capital gain tax will bring marginal revenue gain of about Rs 20,000 crore in the first year. The revenues in subsequent years may be more,” he had said.
 
The fund’s biggest holding is Reliance Industries (Rs 9,361.2 crore). This is followed by Infosys (Rs 5,922.2 crore) and Housing Development Finance Corporation (Rs 4,873.8 crore).
 
At the end of 2020, financials accounted for 25.3 per cent of its equity holdings. This was followed by technology (15.2 per cent), and consumer goods (14.9 per cent). The fourth on the list was the oil and gas sector. It accounted for 12.6 per cent of total equity holdings and higher than the 10.7 per cent weighting it held in 2019. The fund has spoken about moving away from the oil and gas exploration and production companies, though it is still reportedly holding on to integrated oil companies.
 
“Our results hence indicate that it might be beneficial for an investor that already has substantial oil price exposure outside their financial portfolio, not to add to this exposure by investing in oil & gas stocks in their financial portfolio,” a 2017 Norges Bank Investment Management discussion note on the matter had said.
 
It has also sought to invest in renewable energy infrastructure.
 
The Indian government has, meanwhile, sought to ease the tax burden of sovereign wealth funds in some ways. It notified a tax exemption on April 19 for infrastructure investments by Norway’s sovereign wealth fund.
 
“...the Central Government hereby specifies the sovereign wealth fund, namely, the Norfund, Government of Norway...as the specified person for the purposes of the said clause in respect of the investment made by it in India on or after the date of publication of this notification in the Official Gazette but on or before the 31st day of March, 2024,” the gazette notification said.
 
The fund did not reply to an email requesting comment.