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CMA Intermediate · Direct and Indirect Taxation · Income which does not form part of Total Income

A sovereign wealth fund claimed exclusion of income from a qualifying infrastructure investment under Schedule V Sl. No. 7 of the Income-tax Act, 2025. In a later tax year, the fund took a loan from a private bank for the purpose of making investment in India. What is the consequence?

The fund is deemed not eligible for the exclusion. Under Schedule V Sl. No. 7, a sovereign wealth fund or pension fund that has loans or borrowings for making investment in India loses eligibility, and there is no relief based on repayment within three years.

  1. ANo consequence, as loans matter only for pension funds
  2. BThe fund is deemed not eligible for the exclusionCorrect
  3. COnly the interest on the loan is disallowed, and the exclusion continues
  4. DThe exclusion continues if the loan is repaid within three years

Explanation

Condition (h) of Sl. No. 7 states that if a sovereign wealth fund or pension fund has loans or borrowings, directly or indirectly, for making investment in India, it is deemed not eligible for exclusion. It applies to both kinds of fund, and no repayment grace period appears in the text. Condition (d) also makes earlier excluded income chargeable when conditions fail.

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