CBDT extends Income Tax Exemption for Sovereign Wealth and Pension Funds u/s 10(23FE) of Income Tax Act [Read Notification]

To reinforce India’s position as a premier destination for long‑term global capital, the Central Board of Direct Taxes (CBDT) has announced a five‑year extension of the income‑tax exemption under Section 10(23FE) of the Income‑tax Act, 1961, for sovereign wealth funds (SWFs) and pension funds. Through Notification S.O. 3167(E), dated July 11, 2025, the government amended the principal notification S.O. 2879(E) of July 19, 2024, by substituting the earlier deadline of “31st day of March, 2025” with “31st day of March, 2030”

Effective April 1, 2025, this amendment ensures uninterrupted tax relief for notified funds, preventing any gap in the exemption window between the original expiry and the new cut‑off date.

The notification exercises powers under sub‑clause (iv) of clause (c) of Explanation 1 to clause (23FE) of Section 10. It specifies that, “except as respects things done or omitted to be done” from April 1, 2025 until the date of publication, all prior benefits granted by S.O. 2879(E) remain intact. This drafting preserves the tax-exempt status of income streams recognized under the earlier regime without requiring fresh approvals or compliance filings.

The Budget Memorandum noted that, “Extension of date of making investment by Sovereign Wealth Funds, Pension Funds & others and rationalisation of tax exemptions Clause (23FE) of section 10 of the Act provides for the exemption to specified persons from the income in the nature of dividend, interest, long-term capital gains or certain other incomes arising from an investment made by it in India.”

Specified persons inter alia are “Sovereign Wealth Fund (SWF), Pension Fund (PF)” which fulfills conditions prescribed therein and are specified for this purpose by the Central Government through notification in the Official Gazette. This provision was introduced through the Finance Act, 2020 to encourage investments of SWF and PF into infrastructure sector of India.

Sub-clause (i) of clause (23FE) of section 10, inter alia, provides that investment is made on or after the 1st day of April, 2020 but on or before the 31st day of March, 2025.

Suggestions have been received that given the long-term nature of infrastructure investments and the role of foreign SWFs and PFs in financing such projects, the deadline for investment under clause (23FE) of section 10 be extended. This will provide the stability and time frame necessary for global investors to make substantial contributions to India’s infrastructure development.

Further, the amendments to section 50AA by Finance (No. 2) Act, 2024, have re-classified all the capital gains from unlisted debt securities as short-term capital gains, irrespective of the holding period. This will result in the long term capital gains from investment in unlisted debt investments to be taxable in the hands of SWFs and PFs. Prior to the said amendments, notified SWFs or PFs were eligible for exemptions on long-term capital gains from unlisted debt securities under clause (23FE) of section 10.

(I) It is, therefore, proposed to amend clause (23FE) of section 10, so as to provide that,– long-term capital gains (whether or not such capital gains are deemed as short-term capital gains under section 50AA) arising from an investment made by it in India, shall inter alia not be 16 included in the total income of a specified person under clause (23FE) of section 10; and

(II) the date of investment under the said clause shall extended from 31st day of March, 2025 to 31st day of March, 2030. These amendments will take effect from the 1st day of April, 2025.”

Section 10(23FE) was introduced through the Finance Act, 2020 to incentivize infrastructure financing by sovereign wealth and pension funds. It exempts income in the nature of dividend, interest, and long‑term capital gains earned by specified funds from eligible investments in Indian infrastructure made between April 1, 2020 and March 31, 2025.

Stakeholders had urged a longer investment window, citing the inherently lengthy gestation periods of large‑scale projects; extending the exemption to 2030 aligns the policy framework with project lifecycles in core sectors such as transport, energy, urban renewal, and telecommunications.

Under Secretary Bahni Telenga, in signing the amendment, underscored the government’s commitment to an investor‑friendly tax regime that supports long‑term growth objectives.

The extended exemption covers all notified funds, including marquee investors such as MIC Redwood 1 RSC Limited of Abu Dhabi, Norfund of Norway, the Canada Pension Plan Investment Board and its private holdings, and Caisse de dépôt et placement du Québec, among others. It shields income from dividends, interest and long‑term capital gains on eligible bond issuances by entities such as NHAI, REC, PFC and IRFC through March 2030, thereby underpinning the financing of core infrastructure assets.

With this extension, sovereign wealth and pension funds gain the certainty needed to deploy capital over an extended horizon that matches project maturities. The CBDT has clarified that affected funds need only continue under the existing notification approvals and quarterly compliance filings, with no additional application procedures for the extended period.

Market participants expect that this measure will unlock fresh funding flows, aiding India’s National Infrastructure Pipeline and advancing its ‘Make in India’ and infrastructure‑led growth strategies through the end of the decade.

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