Foreign Pension Funds’ tax treatment to match Sovereign Funds for certain investments 


With a view to boost infrastructure investments in India and make Indian investment more attractive, the Finance Act, 2020 (FA, 2020) introduced section 10(23FE) in the Income-tax Act, 1961 (IT Act). This section provides an exemption from tax in India in respect of income of certain specified investors who have investments in the infrastructure sector. Specified investors for this purpose include a wholly owned subsidiary of Abu Dhabi Investment Authority, ‘pension funds’ (PF) and ‘sovereign wealth funds’ (SWF). The exempt income would include interest, dividend or long-term capital gains arising to the specified investors, from their investments made in (a) company or entity engaged in developing, maintaining or operating an ‘infrastructure facility’ (Infra Companies); (b) Category-I and Category-II Alternate Investment Funds which have in turn made all their investments in Infra Companies; and (c) business trusts (i.e. Real Estate Investment Trusts and Infrastructure Investment Trusts). These exemptions are available if the Specified Investors meet certain conditions, including the requirement that they should be notified by the Indian Central Government in this regard. In pursuance to this, the Central Board of Direct Taxes (CBDT) has specified the procedure for the inclusion of PFs in the tax exemption notification.

In order to be eligible for this benefit, the PF needs to be a pension fund which:

  1. is created or established under the laws of a foreign country (including state or provincial laws);
  2. is not liable to tax in such foreign country;
  3. satisfies such other conditions as may be prescribed; and
  4. is specified by the Central Government, by notification in the Official Gazette, for this purpose.

In the notification 67/2020 (Notification), the CBDT has inserted Rule 2DB in the Income-tax Rules, 1962 prescribing the conditions that the PF should meet. The Notification also introduces Rule 2DC which contains the guidelines for notification of PF under Section 10(23FE) of the IT Act. 

The following conditions are required to be met in order to be eligible for the benefits under Section 10(23FE) of the IT Act: 

  1. Regulated by law – The PF is required to be regulated by the laws of the foreign country including the local body, provincial or state laws of the place where it is established or created.
  2. Administration of investments – The PF needs to be responsible for administering the assets or investing the assets for meeting statutory obligations and defined contributions of the plan or of the funds such as employment, social security, death benefits etc.
  3. No benefit to private person – The PF should be using its earnings and assets only for meeting statutory obligations and defined contributions, and any portion of the earnings and assets should not inure to the benefit of any private person.
  4. No commercial activity – The PF should not be undertaking any commercial activity within or outside India.
  5. Filing of details regarding investment – The PF should intimate the details of the investments to the Assessing Officer in Form 10BBB (as prescribed in the Notification) on quarterly basis, within a month of the end of each quarter of the financial year. The prescribed form includes the details such as the rate of interest, rate of dividend, name and permanent account number of the entity in which investment is made, etc.
  6. Furnish return of income and CA certificate – The PF is required to file its return of income on or before the applicable due date prescribed under the IT Act. The return of income is required to be accompanied with a certificate issued by an Indian chartered accountant (in Form 10BBC, also prescribed in the Notification), certifying the PF to be in compliance with the provisions of Section 10(23FE) read with Rule 2DB, including the conditions discussed above.

Additionally, the Notification has also prescribed Form 10BBA for making the application to the CBDT so that eligible PF can get notified and avail benefit under Section 10(23FE). This form essentially confirms that the PF meets all the terms and conditions for such eligibility. 


The Notification paves the way for PFs to invest in Indian infrastructure sector by removing burden of being taxed in India. This should, therefore, provide the much-needed boost to this sector. Since the conditions for claiming tax exemption under Section 10(23FE) of the IT Act is not unreasonable, it should be relatively simpler for PFs to seek benefit under this Section while at the same time comply with the filing requirements.