Union finance minister Nirmala Sitharaman on Saturday sought to attract investments by sovereign wealth funds (SWF), including the wholly owned subsidiary of Abu Dhabi Investment Authority (ADIA), by granting them tax relief on investments made in India’s infrastructure sector.

However, this will have to be done by March 31, 2024, and they should have a minimum lock-in period of three years.

“In order to incentivise the investment by the SWF of foreign governments in the priority sectors, I propose to grant 100 per cent tax exemption to their interest, dividend and capital gains income in respect of investment made in infrastructure and other notified sectors before March 31 2024 and with a minimum lock-in period of 3 years,” the finance minister said in her budget speech.

Section 10 of the Income Tax Act provides for exemption in respect of certain incomes and activities under specific circumstances.

According to the budget documents, it is proposed to insert a new clause in the section to provide exemption to any income of a “specified person” in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or equity, in a company or enterprise carrying on the business of developing, or operating and maintaining, or developing, operating or maintaining any infrastructure facility.

It added that the “specified person” is proposed to be defined to mean a wholly owned subsidiary of the ADIA, and which makes investment, directly or indirectly, out of the fund owned by the Government of the United Arab Emirates and a SWF which satisfies the others conditions.

The SWF it added, should be a wholly owned and controlled, directly or indirectly, by the government of a foreign country. Moreover, it should be set up and regulated under the law of the foreign country.

The amendment will take effect from April 1, 2021 and will, apply in relation to the assessment year 2021-22 and subsequent assessment years.

Sitharaman in her speech also disclosed that the government will increase the investment limit of foreign portfolio investors (FPI) in corporate bonds from 9 per cent to 15 per cent of the outstanding value of corporate bonds.