The Central Board of Direct Taxes (CBDT) has issued guidelines for granting an exemption under section 10(23FE) of the Income Tax Act, 1961 to Foreign Wealth Funds and Pension Funds.
The Finance Act, 2021, inserted a new clause (23 FE) of section 10 of the Act to provide that in case the specified fund has loans or borrowings, directly or indirectly, for the purposes of making an investment in India, such fund shall be deemed to be not eligible for exemption under this clause.
In this regard, the Board has received concerns with regard to the term ‘ indirectly’ used in the said proviso of the clause (23 FE) of section 10 of the Act that it is not defined and no clarity has been provided thereon under the extant provisions.
Further, concerns have been raised that if the specified fund or its holding entity or any other entity in the chain of holding or any associate thereof (hereinafter referred to as “group concern”) has any loans or borrowings, the specified fund may be ineligible to get the exemption under the said clause, the Board said.
In order to address the above two issues, the Board has issued a circular issuing the following. Firstly, if the loans and borrowings have been taken by the specified fund or any of its group concerns, specifically for the purposes of making an investment by the specified fund in India, such fund shall not be eligible for exemption under clause (23FE) of section 10 of the Act. Secondly, if the loans and borrowings have been taken by the specified fund or any of its group concerns, not specifically for the purposes of making an investment in India, it shall not be presumed that the investment in India has been made out of such loans and borrowings and such specified fund shall be eligible for exemption under clause 23(FE) of section 10 of the Act, subject to the fulfillment of all other conditions under the said clause, provided that the source of the investment in India is not from such loans and borrowings.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
