Private sector DFIs may get 5-year tax holiday

The government will provide a five-year income tax holiday to private sector development finance institutions (DFIs) to build a robust system for funding infrastructure. They will join a state-owned DFI that’s being set up.

The government will move an amendment to the income tax act to provide for the tax holiday when the Finance Bill is taken up for passage in Parliament, a senior government official told ET.

The cabinet on Tuesday approved the National Bank for Financing Infrastructure and Development (NaBFID) — the state-run DFI proposed in the budget — and a bill for the creation of government-owned as well as private DFIs. The DFI bill will soon be introduced in Parliament


State-owned NaBFID will enjoy a 10-year income tax holiday and receive a Rs 5,000 crore grant in lieu of tax-free bonds to neutralise the higher cost of funds, finance minister Nirmala Sitharaman had said.

Certain asset transfers to DFIs will also get stamp duty relief, the official said.

RBI will regulate DFIs and formulate rules for them. DFIs set up in the private space in the 1990s were converted into scheduled commercial banks as they struggled with the challenges of the long-term infrastructure financing.

The government is keen to ensure that DFIs succeed this time around, given the need for such funding, by putting in place a facilitative framework. DFI will also support credit enhancement mechanisms, provide project development and monitoring, and help develop the bond market, thereby nurturing the overall infrastructure financing ecosystem. The National Infrastructure Pipeline has pegged the funding requirement at over Rs 111 lakh crore till 2025.