The Union Budget 2020 has announced sops for the ailing infrastructure sector. This move by the government is expected to surge the investments in the sector, which is currently running short on cash.
The FinMin announced 100% exemption of tax on long-term capital gains, interest, and dividends on investments made by the Sovereign Wealth Funds (SWF) in the infrastructure sector.
Furthermore, the government reduced the tax on unlisted infrastructure investment trusts. It is now on par with the listed ones. These announcements are anticipated to benefit the roads sector significantly.
Sovereign wealth funds such as Qatar Investment Authority, Abu Dhabi Investment Authority (ADIA), and Singapore’s GIC have made numerous investment commitments for the infrastructure sector in India.
The year 2019 witnessed four announcements of major investments by sovereign wealth funds. NIIF and ADIA, along with one other investor, decided to buy a 49% stake in GVK Airport Holdings. This company operates the airport in Mumbai.
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Tata Group, in association with GIC, and one other investor have agreed to invest Rs 8,000 crore in GMR Airports. This company is responsible for operating Delhi’s Indira Gandhi International Airport, which happens to be the busiest in India.
GIC entered into a deal in the roads sector with IRB Infrastructure Developers last year. The deal is worth Rs 4,400 crore. GIC and KKR, a private equity player have entered into a Rs 2,000 crore investment deal in Sterlite Power’s InVIT and IndiGrid.
The government’s decision to offer tax exemption on capital gains, interest, and dividends is expected to spur the investments into the infra sector massively. This exemption will help in restoring the confidence of investors and will benefit in the funding of TOT and BOT projects.
This exemption is applicable to those investments made on or before March 2024. This is a masterstroke in attracting investments for the upcoming projects from foreign sovereign wealth funds.
Another significant amendment in this year’s budget is that unlisted InvITs will be treated on par with listed ones. This will be effective from the next fiscal year. Listed InVITs are currently enjoying the pass-through tax status on the income earned by business trusts.
The move to rationalise the tax treatment is expected to attract private investments into the roads sectors and other infra projects.
For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in.
Engineer by qualification, financial writer by choice. I am always open to learning new things.
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