Income in the nature of dividend, interest or long-term capital gains of a wholly owned subsidiary of the Abu Dhabi Investment Authority or a sovereign wealth fund or a pension fund is exempt from tax under section 10(23FE) . The exemption is allowed on fulfilment of certain conditions.

What is a sovereign wealth fund (SWF)?

A sovereign wealth fund which fulfils the following conditions can claim an exemption under section 10(23FE):

 (a) It is wholly owned and controlled by the Government of a foreign country, whether directly or indirectly;

 (b) It is set up and regulated under the law of such foreign country;

 (c) The earnings of the said fund are credited either to the account of the Government of that foreign country or to any other account designated by that Government so that no portion of the earnings inures any benefit to any private person. However, the fund can use such income to repay the amount of loans or borrowings taken otherwise for the purpose of making the investment in India.

 (d) The assets of the said fund vest in the Government of such foreign country upon dissolution. However, the fund can use such assets before handing over to the Government for the repayment of loans or borrowings taken otherwise for the purpose of making the investment in India;

 (e) It does not participate in the day-to-day operations of the investee. However, the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive directors shall not be considered as participation in the day-to-day operations of the investee;

 (f) It is specified by the Central Government, by notification in the Official Gazette, for this purpose and fulfils the conditions specified in such notification; and

 (g) It has not invested directly or indirectly with the help of loans or borrowings. In this regard, it has been clarified by the CBDT that the sovereign wealth fund shall not be eligible for exemption even if it made the investment in India out of loans taken by its group concerns.

When Form-II is required to file by the sovereign wealth fund?

The Sovereign wealth fund is required to file a quarterly statement electronically in Form II in respect of each investment made during the quarter.

What is the due date to file Form II?

Form II shall be filed within 1 month from the end of the quarter.