Tax exemption for sovereign wealth funds and benefits for investment in infrastructure investment trusts (InvITs) are expected to help public sector entities in their asset monetisation drive. Experts see the Budget announcement positive for investments both in InvITs and the toll-operate-transfer mode (TOT).
To incentivise investments from sovereign wealth funds in the priority sectors, Finance Minister Nirmala Sitharaman said in her speech, a 100 per cent tax exemption to their interest, dividend and capital gains income in respect of investment would be allowed. They are to be made in infrastructure and other 36 notified sectors before March 31, 2024, and with a minimum lock-in period of three years.
“The incentives to sovereign funds will help the country with its monetisation drive,” said Ratnam Raju, associate director (Group head of Infrastructure and Project Finance) at CARE Ratings. The Abu Dhabi Investment Authority and Singapore’s GIC are some of the sovereign wealth funds with investments in India.
According to the Finance Bill, these incentives will apply to sovereign wealth funds, wholly owned and controlled, directly or indirectly, by the government of a foreign country. Experts said the definition to allow for direct and indirect control made it a wide ambit for most sovereign funds to qualify.
“Incentives given to sovereign funds and the tax benefit extended to unlisted InvITs will help the government attract more foreign investment and investor interest in general to InvITs. This should largely help and is in line with plans of InvIT by the National Highways Authority of India (NHAI) and other state-run entities,” said Shubham Jain, senior vice- president and group head of corporate ratings for ICRA.
Others also expect the removal of dividend distribution tax (DDT) will help government authorities like NHAI attract higher interest in roads offered under the TOT model.
“In the road sector, these incentives will attract more investments from sovereign funds in the toll operate transfer model. These are steps in line with the main theme of asset monetisation, including that of one major port,” Raju from CARE Ratings said.
The removal of DDT, however, may reduce incentive for Indian promoters and investors to look at InvITs. “With abolition of DDT, the advantage available with InvITs of pass-through status will get diluted to some extent. Further, the entire dividend will get taxed in the hands of investors irrespective of the amount. Earlier dividend income of up to Rs 10 lakh was exempted,” Jain said.
For Indian promoters, Bhairav Dalal, leader of real estate tax for PwC India, said: “With the removal of DDT, the tax regime for a listed company is aligned with InvITs. Given this alignment, the promoters can choose between the two monetisation options.”