The Central Board of Direct Taxes (CBDT) has issued Circular No. 03/2026 dated March 30, 2026, introducing a structured compliance and reporting mechanism for Sovereign Wealth Funds (SWFs) under the Income-tax Act, 2025.
The circular lays down procedures for notification, application, and ongoing reporting requirements, aiming to streamline tax exemptions available to foreign sovereign investors in India’s infrastructure sector.
Key Highlights of CBDT Circular 03/2026
1. Tax Exemption Framework for SWFs
Under Schedule V of the Income-tax Act, 2025, eligible SWFs can claim tax exemption on:
- Dividend income
- Interest income
- Certain specified sums
- Long-term capital gains
These benefits apply to investments made in specified infrastructure businesses between April 1, 2020 and March 31, 2030, provided the investment is held for at least three years.
2. Mandatory Application Process - Form I
CBDT has introduced Form I as the standard application format for SWFs seeking notification.
- Must be filed with the CBDT authority handling foreign tax matters
- Requires detailed disclosures including:
- Country of residence
- Tax Identification Number (TIN)
- Legal structure and supporting documents
3. Quarterly Reporting Requirement - Form II
All notified SWFs must now:
- File a quarterly statement (Form II)
- Submit within one month from the end of each quarter
- Report details of every investment made during the period
Additionally, SWFs must:
- File income tax returns
- Submit audit reports
4. Two Categories of SWFs Defined
Category I: Already Notified SWFs
- No need to file Form I again
- Must comply with quarterly reporting via Form II
Category II: New Applicants
- Required to:
- Submit Form I for notification
- File Form II quarterly after approval
5. Digital Filing & System Oversight
The CBDT has assigned the Director General of Income-tax (Systems) to:
- Define data standards and filing procedures
- Ensure secure submission and data management
- Enable electronic compliance infrastructure
6. Effective Date
The new framework will come into force from: April 1, 2026
Applicable from Tax Year 2026-27 onwards
Impact on Investors and Infrastructure Sector
This move is expected to:
- Enhance transparency in foreign investments
- Strengthen compliance monitoring
- Facilitate smoother entry for global sovereign funds
- Boost infrastructure financing in India
By standardizing reporting and application processes, the government aims to create a more investor-friendly yet accountable tax regime.
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