CBDT exempts Sovereign Wealth Fund: Key Facts, Benefits, Types, Sources of Sovereign Wealth Fund

The Central Board of Direct Taxes recently exempted the interest, dividend and long term capital gains made by the Sovereign Fund MIC Redwood 1 RSC Limited of Abu Dhabi, UAE (United Arab Emirates).

Highlights

The exemption has been provided under clause 23 FE of Section 10 of the Income Tax Act. This will allow sovereign wealth funds to invest in infrastructure projects in India. The exemption is to be allowed till March 31, 2024.

Conditions

The Sovereign Wealth Funds are being exempted under the certain conditions. They are as follows

  • No Commercial activity shall be undertaken using the fund within India or outside India
  • Income Tax has to be filed for the years investment is made till the time it is liquidated.
  • Quarterly statement of investments should be produced

The funds shall be continued to be controlled and owned by the government of Abu Dhabi. Also, it will be regulated under the laws of Abu Dhabi.

What is Sovereign Wealth Fund?

It is an investment fund owned by the state. It comprises of money generated by the Government. It is often derived from the surplus reserves of the country. The Sovereign Funds benefits economy of the country largely.

What are the sources of Sovereign Wealth Fund?

The Sovereign Wealth Fund comes from trade surpluses, state-owned natural resource revenues, bank reserves. It might accumulate from foreign currency operations, budgeting excesses, money from privatizations and governmental transfer payments.

Types of Sovereign Wealth Fund

The different types of Sovereign Wealth Fund are stabilization funds, Reserve Investment Funds, Savings or future generation funds, Public benefit pension reserve funds, funds targeting specific industries, foreign currency reserve assets.

Way Forward

A monitoring mechanism is to be set up by the fund. Only the surplus fund of Government of Abu Dhabi shall be invested in the fund.

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