Circular no. 3 of 2026, dated 30-03-2026
The Central Board of Direct Taxes (CBDT) has notified the procedure for Sovereign Wealth Funds (SWFs) to seek exemption under Schedule V of the Income-tax Act, 2025, providing clarity on eligibility, application, and compliance requirements.
1. Scope of Exemption under Schedule V
The Schedule grants exemption to SWFs in respect of income arising from investments in India, specifically:
- Dividend income
- Interest income
- Any sum referred to in section 92(2)(k)
- Long-term capital gains
Such exemption is available where the income arises from investments in specified infrastructure businesses in India.
2. Application Procedure (Form I)
To avail the exemption, the SWF is required to:
- Submit an application in Form I
- Address it to the Member, CBDT, having supervision over the Foreign Tax and Tax Research Division
This ensures centralised review and approval of exemption claims.
3. Ongoing Compliance Requirements
Once notified, the SWF must adhere to the following compliance obligations:
- Filing of Income Tax Return along with the prescribed audit report
- Quarterly reporting through Form II, to be filed within one month from the end of each quarter
4. Regulatory Intent and Impact
The framework aims to:
- Facilitate foreign sovereign investments in India’s infrastructure sector
- Ensure transparency and regulatory oversight
- Balance tax incentives with reporting discipline
5. Conclusion
The notified procedure provides a structured and compliance-driven pathway for SWFs to claim tax exemptions, supporting long-term capital inflows into critical infrastructure while maintaining accountability under the tax framework.
Click Here To Read The Full Circular
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