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The Centre is considering tax reliefs for Saudi Arabia‘s sovereign wealth fund, as a means to facilitate the proposed $100 billion investments by the West Asian Kingdom in the country’s infrastructure and energy sectors.
According to official sources, the proposals under consideration include a tax holiday of up to 10 years for Saudi Public Investment Fund (PIF) and further streamlining of procedures to make it easier for it to claim tax exemption on dividend, interest, and long-term capital gains (LTCG) on investments in infra-assets.
PIF may be given a treatment similar to Abu Dhabi Investment Authority (ADIA), which gets specific tax benefits under the Income Tax Act.
During Prime Minister Narendra Modi’s recent visit to Riyadh, talks were held on the Gulf country’s investment plans for India, as it steps up investments across the world, and diversifies into sectors other than petroleum.
PIF, one of the largest sovereign wealth funds in the world, presides over assets worth $925 billion. Despite being such a big source of long-term patient capital, its exposure to India is currently limited to a few ventures, including $1.5 billion in Jio Platforms and $1.3 billion in Reliance Retail Ventures Ltd.
“Saudi Arabia wants tax exemption for their investments in infrastructure assets in India, including refineries. It is likely to get wider exemptions, the details are being worked out,” an official aware of the matter said.
A High-Level Task Force (HLTF) was constituted in 2024 for promoting investment flows between the two countries. Saudi Arabia has shown interest in investing in India in multiple areas, including energy, petrochemicals, infrastructure, technology, fintech, digital infrastructure, telecommunications, pharmaceuticals, manufacturing and health.
Besides tax exemptions under Section 10 (23FE) of the Act, Saudi investments could also get tax holidays under Section 80IA. “Depending on what investments they make and how, the tax exemptions will be worked out,” the official added. Tax holiday on profits under the Section 80IA could be up to ten years.
Section 10(23FE) exempts SWFs and global pension funds from taxes arising on interest, dividends, and LTCGs related to infrastructure investments made in India during specified periods. ADIA and its wholly owned subsidiaries are specifically mentioned in the Act for the exemption. While PIF is also eligible under this section to get tax benefits like other SWFs, it wants a treatment similar to ADIA. So, PIF may be included under Section 10 (23FE) itself, which will cut down procedures for it to get tax exemption.
Last week, FE reported that Saudi Aramco, the world’s largest petroleum company, may pick up 20% stakes each in the two new large refineries being planned by India’s state-run ONGC and BPCL on the country’s west and east coasts, respectively. It could invest around $2.8 billion in debt and equity of both projects. However, Aramco is not an SWF and could not get tax exemptions under Section 10 (23FE) for direct investment in the projects.
So, it could set up Infrastructure Investment Trusts (InvITs) with BPCL for the Andhra Pradesh refinery and with ONGC for the Gujarat refinery. PIF would invest in those InvITs and get the tax exemption on dividend income.
The High-Level Task Force recently came to an understanding in multiple areas, which will rapidly promote such investment flows. The progress made by this Task Force in taxation was also a major breakthrough for greater cooperation in the future.
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