3-year lock-in period on IDF bonds investments waived off

To promote funding in the infrastructure sector, the government waives the three-year lock-in period on the investments made in infrastructure debt funds (IDFs) by the non-residents. The Central Board of Direct Taxes has issued a notification on the 16th of September 2019 amending the income tax rules, 1962. 

The tax laws were amended back in 2011 to provide an exemption to infrastructure debt fund from the income tax provisions. This amendment was done with an aim to stimulate and enhance the flow of long-term debt in infrastructure projects. 

To attract foreign investments in IDFs, any amount of interest received by non-resident individuals or any foreign company from investment in such IDFs is taxable at the reduced rate of 5%.

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Prior to this amendment, the investment made in IDFs by non-resident were locked in for a period of three years. But, if a non-resident transferred such bonds to another non-resident outside India, such transfer was not considered as a transfer for the purpose of capital gains and no capital gain tax was applicable on the same. 

However, all these benefits are only available to the IDF, set up as per the prescribed guidelines and has fulfilled required conditions. 

The non-resident investors will now be able to freely transfer their IDFs bonds. This decision will attract off-shore investors to invest in IDF bonds, which will, in turn, accelerate the growth of the infrastructure sector in India.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in