New Regulations for Infrastructure Debt Funds: Income Tax (Third Amendment) Rules, 2025 [Read Notification]

The Ministry of Finance issued Notification No. 13/2025 dated February 7, 2025, introducing amendments to the Income-tax Rules, 1962 under the Income-tax (Third Amendment) Rules, 2025. The notification was released by the Central Board of Direct Taxes (CBDT), revising Rule 2F, and laying down new regulations for Infrastructure Debt Funds (IDFs) to ensure compliance with Reserve Bank of India (RBI) guidelines and enhance financial transparency in infrastructure financing.

Name and Effective Date

• These rules will be known as the Income-tax (Third Amendment) Rules, 2025.
• They will come into effect from the date they are published in the Official Gazette.

Changes to Rule 2F of the Income Tax Rules, 1962

The following changes have been made to Rule 2F, which deals with Infrastructure Debt Funds (IDFs):

(1) Infrastructure Debt Fund as a Non-Banking Financial Company (NBFC)

• IDFs must be set up as Non-Banking Financial Companies (NBFCs).
• They must follow the rules and conditions set by the Reserve Bank of India (RBI).

(2) Investment Restrictions for IDFs

• IDFs can only invest in Infrastructure projects that have been operational for at least one year and Toll-Operate-Transfer (TOT) projects, where the IDF will act as a direct lender.

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(3) Fundraising Methods for IDFs

IDFs can raise money using the following methods:

• Issuing bonds: These can be either rupee-denominated bonds or foreign currency bonds. The issuance must follow RBI guidelines and Foreign Exchange Management Act (FEMA) regulations.
• Issuing zero-coupon bonds, as per Rule 8B of the Income-tax Rules.
• Raising loans from foreign lenders (External Commercial Borrowings - ECBs).

(4) Rules for Bonds and Borrowings

• Bonds issued by IDFs must comply with RBI and FEMA regulations.
• External Commercial Borrowings (ECBs) must follow the Foreign Exchange Department of RBI’s rules.

(5A) Minimum Tenure for External Commercial Borrowings (ECBs)

• IDFs must take foreign loans (ECBs) for at least five years.
• These loans cannot be borrowed from foreign branches of Indian banks.

(7) Restriction on Investment in Related Projects

• IDFs are not allowed to invest in projects where a specified shareholder, an associated enterprise, or a group of such shareholders has a substantial interest.

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Clarifications in Definitions

• The word "associate" is now changed to "associated".
• A "specified shareholder" is now defined as: A non-banking financial company (NBFC), a bank, or any other entity that directly or indirectly holds at least 30% of the voting power in the IDF.

To Read the full text of the Notification CLICK HERE

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