CBDT notifies Additional Conditions for Pension Funds for Exemption under section 10(23FE): Union Budget 2020 has introduced a new section 10(23FE) in order to promote investment of sovereign wealth funds, including the wholly-owned subsidiary of Abu Dhabi Investment Authority (ADIA). This section grants tax exemption to interest, dividend and capital gains income of Sovereign Wealth Fund and a wholly-owned subsidiary of the ADIA subject to fulfilment of certain conditions, in respect of investment made in the infrastructure sector or other deserving notified sectors before 31st March, 2024 and with a minimum lock-in period of 3 years.
Earlier, CBDT vide Notification No. 44/2020 dated 06.07.2020 widens the definition of infrastructure under section 10(23FE) to align it with Harmonised List of Infrastructure notified by Department of Economic Affairs (DEA) and vide Circular No. 15/2020 dated 22.07.2020 issued Order u/s 119 to provide for filing of an application in Form No. I for getting notified under section 10(23FE) by a Sovereign Wealth Fund (SWF).
Explanation (c) to section 10(23FE) defines a pension fund, which—
(i) is created or established under the law of a foreign country including the laws made by any of its political constituents being a province, State or local body, by whatever name called;
(ii) is not liable to tax in such foreign country.
(iii) satisfies such other conditions as may be prescribed; and
(iv) is specified by the Central Government, by notification in the Official Gazette, for this purpose;
As per clause (iii), such a pension fund is required to satisfy the prescribed conditions to be notified by the government.
CBDT has now vide Notification No. 67/2020 dated 17.08.2020 has prescribed additional conditions to be satisfied by the pension fund for availing the exemption from income in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India, whether in the form of debt or share capital or unit under section 10(23FE). One of the important conditions is filing of a certificate in Form No. 10BBC from a Chartered Accountant.
New Rule 2DB and Rule 2DC are inserted in the Income Tax Rules, 1962 for the purpose.
The pension fund is required to file its return of income in India within the due date specified in section 139(1).
The additional conditions are as given below-
(i) The pension fund must be regulated by the foreign law under which it is created or established.
(ii) The pension fund is responsible for administering or investing the assets of one or more funds or plans established for providing retirement, social security, employment, disability, death benefits or any similar compensation to the participants or beneficiaries of such funds or plans.
(iii) The earnings and assets of the pension fund are used only for meeting statutory obligations and defined contributions for participants or beneficiaries of funds or plans. The earnings or assets of the pension fund shall not give any benefit to any other private person.
(iv) It does not undertake any commercial activity whether within or outside India.
(v) It shall intimate the details in respect of each investment made by it in India during the quarter within one month from the end of the quarter in Form No. 10BBB;
(vi) It shall file return of income on or before the due date specified under sub-section (1) of section 139 and furnish along with such return a certificate in Form No. 10BBC in respect of compliance to the provisions of clause (23FE) of section 10, during the financial year, from an accountant as defined in the Explanation below sub-section (2) of section 288.
Further, for being notified as a Pension Fund under this clause, the Notification No. 67/2020 specifies the guidelines for the purposes of notification under sub-clause (iv) of clause (c) of Explanation to the clause (23FE) of section 10.
For this purpose, the pension fund has to file an application in Form No. 10BBA with relevant documents and evidence to the CBDT.
The Pr. DGIT/DGIT (Systems) shall lay down the data structure, standards and procedure of furnishing and verification of Form No. 10BBB and Form No. 10BBC.
Form No. 10BBA, Form No. 10BBB, Form No. 10BBC are annexed to the Notification.
Read the full text of the Notification No. 67/2020 dated 17.08.2020 on additional conditions for availing exemption under section 10(23FE) by a notified Pension Fund
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 12th September, 2019
(INCOME-TAX)
G.S.R. 508(E).—In exercise of the powers conferred by sub-clause (iii) of clause (c) of Explanation to the clause (23FE) of section 10 read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-
1. Short title and commencement.—(1) These rules may be called the Income-tax (20th Amendment) Rules, 2020.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962,-
(i) after rule 2DA, the following rules shall be inserted, namely: -
“2DB. Other conditions to be satisfied by the pension fund. - For the purposes of clause (23FE) of section 10, the pension fund shall be required to satisfy the following other conditions, namely: -
(i) it is regulated under the law of a foreign country including the laws made by any of its political constituents being a province, state or local body, by whatever name called, under which it is created or established, as the case may be;
(ii) it is responsible for administering or investing the assets for meeting the statutory obligations and defined contributions of one or more funds or plans established for providing retirement, social security, employment, disability, death benefits or any similar compensation to the participants or beneficiaries of such funds or plans, as the case may be;
(iii) the earnings and assets of the pension fund are used only for meeting statutory obligations and defined contributions for participants or beneficiaries of funds or plans referred to in clause (ii) and no portion of the earnings or assets of the pension fund inures any benefit to any other private person;
(iv) it does not undertake any commercial activity whether within or outside India;
(v) it shall intimate the details in respect of each investment made by it in India during the quarter within one month from the end of the quarter in Form No. 10BBB;
(vi) it shall file return of income on or before the due date specified under sub-section (1) of section 139 and furnish along with such return a certificate in Form No. 10BBC in respect of compliance to the provisions of clause (23FE) of section 10, during the financial year, from an accountant as defined in the Explanation below sub-section (2) of section 288.
2DC. Guidelines for notification under clause (23FE) of section 10.- (1) For the purposes of notification under sub-clause (iv) of clause (c) of Explanation to the clause (23FE) of section 10, the pension fund shall make an application in Form No. 10BBA enclosing therewith relevant documents and evidence, to the,-
(i) Member (Legislation), Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, North Block, New Delhi during the financial year 2020-2021;
(ii) Member, Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, North Block, New Delhi having supervision and control over the work of Foreign Tax and Tax Research Division during the other financial years.
(2) The Principal Director General of Income-tax (Systems) or the Director General of Income-tax (Systems), as the case may be, shall lay down the data structure, standards and procedure of furnishing and verification of Form No 10BBB and Form No 10BBC, and shall be responsible for formulating and implementing appropriate security, archival and retrieval policies in relation to the said forms so furnished under this sub-rule.”;
(ii) in Appendix-II, after Form No. 10BB, the following forms shall be inserted, namely:
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