India Considers Major Tax Reliefs for Saudi Wealth Fund Investments

According to a Financial Express news report, India and Saudi Arabia are exploring deeper economic collaboration, with the spotlight now on incentivising long-term foreign investments. During Prime Minister Narendra Modi’s recent visit to Riyadh, key discussions centred around Saudi Arabia’s ambitious plan to invest up to $100 billion in India. These investments would span across critical sectors such as infrastructure, energy, technology, and healthcare.

What Is the Public Investment Fund (PIF)?

The Public Investment Fund (PIF) is Saudi Arabia’s sovereign wealth fund, managing assets worth approximately $925 billion. With a strategic focus on global diversification beyond oil, PIF has gradually increased its presence in India, including $1.5 billion in Jio Platforms and $1.3 billion in Reliance Retail Ventures Ltd – the retail initiative of Reliance Industries Limited. However, compared to its global portfolio, its Indian exposure remains limited.

Read More: Reliance Share Price Hits 4-Month High Ahead of Q4FY25 Results: Board to Consider Dividend and Fundraising Plans

Proposed Tax Breaks: What Is Being Considered?

As reported by Financial Express, the Indian government is considering a range of tax incentives to facilitate these large-scale investments:

• A 10-year tax holiday on profits derived from infrastructure projects.

• Simplified exemption claims for dividends, interest, and long-term capital gains (LTCG) on infra-related investments.

• Inclusion under Section 10(23FE) of the Income Tax Act aligns PIF’s benefits with those already enjoyed by the Abu Dhabi Investment Authority (ADIA).

Section 10(23FE) and Section 80IA: The Tax Framework

Section 10(23FE) of the Income Tax Act offers tax exemptions to sovereign wealth funds (SWFs) and global pension funds on income earned through interest, dividends, and LTCGs from specified infrastructure investments in India. Presently, entities like ADIA are explicitly mentioned in this provision. Inclusion of PIF in this section would streamline its access to tax benefits, reducing procedural barriers.

Additionally, Section 80IA allows for a tax holiday of up to ten years on profits derived from infrastructure projects, potentially boosting the internal rate of return (IRR) for long-gestation investments.

A Parallel to ADIA: Seeking Equal Treatment

Officials suggest that Saudi Arabia is keen on ensuring that PIF receives similar treatment to ADIA in the Indian tax framework. While PIF is already technically eligible under Section 10(23FE), a named inclusion, like that of ADIA, would likely eliminate ambiguity and administrative friction.

Structuring Investments: InvITs as a Gateway

Financial Express also reports that Saudi Aramco, a separate state-run oil major and not an SWF, is exploring a 20% stake each in the upcoming ONGC and BPCL refineries on India’s west and east coasts. Since Aramco is not eligible for tax benefits under Section 10(23FE), it may collaborate with these firms to set up Infrastructure Investment Trusts (InvITs).

PIF could then invest in these InvITs and legally claim tax exemptions on dividend income—an effective structure aligning investment goals with India’s tax regulations.

High-Level Task Force: Facilitating Bilateral Investment

In 2024, a High-Level Task Force (HLTF) was constituted to deepen bilateral investment partnerships. According to Financial Express, the HLTF has made significant progress in aligning taxation policies, marking a major breakthrough in Indo-Saudi cooperation.

Conclusion

Saudi Arabia has expressed clear interest in India’s growth story, targeting sectors including:

• Petrochemicals and energy infrastructure

• Telecommunications and digital infrastructure

• Fintech and health-tech

• Manufacturing and pharmaceuticals

These interests reflect the PIF’s strategy to support long-term projects in fast-growing economies. India’s reciprocal efforts through tax reforms and procedural clarity could pave the way for substantial capital inflows and strategic collaboration.

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