Public companies seeking to issue infrastructure bonds for tax-efficient capital raising must obtain approval under the Direct Tax Code (DTC) 2025. Schedule XV (1)(z)(i) read with Rule 331 of the Income-tax Rules, 2026 provides the framework for this approval. This guide explains the approval process, Form 189 filing, and compliance requirements.
The Statutory Framework
Schedule XV (1)(z)(i) — Approval for Public Companies
Schedule XV of the DTC provides for deduction under Section 123 in respect of life insurance premia, contributions to provident fund, and subscription to certain equity shares, including:
"Subscription to equity shares or debentures forming part of any eligible issue of capital approved by the Board on an application made by a public company"
Eligible Issue of Capital
An "eligible issue of capital" means an issue made by a public company formed and registered in India or a public financial institution and the entire proceeds of the issue are utilised wholly and exclusively for the purposes of any business referred to in section 80-IA(4) of the Income-tax Act, 1961 (as it existed prior to its repeal).
Public Company Definition
A "public company" shall have the same meaning as assigned to it in section 2(71) of the Companies Act, 2013 (18 of 2013).
Form 189 — Application for Approval
Purpose of Form 189
Form 189 is the prescribed application form for public companies seeking approval for issue of capital under Schedule XV (1)(z)(i).
Filing Requirements
Rule 331 of the Income-tax Rules, 2026 prescribes the following requirements:
- Form: Application must be made in Form No. 189
- Time Limit: Application must be filed three months before the eligible issue of capital
- Documents: The application must be accompanied by specified documents
Required Documents
| Document | Description |
|---|---|
| Certificate of Incorporation | Copy under the Companies Act, 2013 |
| Audited Financial Statements | For three tax years immediately preceding the tax year in which the application is made, or for the period of existence, whichever is shorter |
The Approval Process
Step 1: Application Filing
The public company must file Form 189 with the prescribed authority at least three months before the eligible issue of capital.
Step 2: Board Review
The Central Board of Direct Taxes (CBDT) shall review the application and:
- Satisfy itself that the application is complete
- Verify the eligibility of the public company
- Assess the proposed use of funds
Step 3: Approval or Rejection
The Board shall pass an order:
- Approving the application; or
- Rejecting the application (after providing a reasonable opportunity of being heard)
Step 4: Post-Approval Compliance
After approval, the public company must:
- Invest at least 25% of the capital raised in the infrastructure facility before the end of one year from the date of approval
- Invest the rest of the capital in like manner within three years from the date of approval
- Submit a certificate from an accountant specifying the amount invested in each tax year
Deployment Requirements
One-Year Rule
At least 25% of the capital raised must be invested in the infrastructure facility before the end of one year from the date of approval by the Board.
Three-Year Rule
The rest of the capital must be invested in like manner within three years from the date of approval.
Infrastructure Facility
The investment must be in an infrastructure facility as defined in:
- Section 80-IA(4) of the Income-tax Act, 1961 (as it existed prior to its repeal)
- Any other public facility of a similar nature as may be notified by the Board
Compliance Requirements
Annual Certificate
The public company must submit a certificate from an accountant, as defined in section 515(3)(b), specifying the amount invested in each tax year.
Record Keeping
The public company must maintain records of:
- The capital raised
- The investment made in infrastructure facilities
- The deployment of funds
- The utilisation of funds
Withdrawal of Approval
Grounds for Withdrawal
The Board shall have the power to withdraw the approval if the public company:
- Fails to make investments as per the conditions; or
- Fails to file the certificate as required
Procedure for Withdrawal
Before withdrawing approval, the Board shall provide a reasonable opportunity of being heard to the public company.
Tax Implications
Deduction for Subscribers
Subscribers to the infrastructure bonds may be eligible for deduction under Section 123 of the DTC, subject to the conditions specified in Schedule XV.
Conditions for Deduction
The deduction is available only if:
- The issue is approved by the Board
- The subscriber is eligible under Schedule XV
- The conditions specified in Schedule XV are fulfilled
Practical Compliance
For Public Companies
Public companies should:
- Plan the infrastructure bond issue well in advance
- File Form 189 at least three months before the issue
- Ensure all documents are complete
- Comply with deployment requirements
- Submit annual certificates
- Maintain proper records
For Investors
Investors should:
- Verify that the infrastructure bond issue is approved by the Board
- Ensure they are eligible for deduction under Section 123
- Maintain records of their investment
- Claim deduction in their tax return
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on infrastructure bond approval. Our direct tax experts help public companies navigate the approval process, file Form 189 correctly, and ensure compliance with deployment requirements. We assist in application preparation, documentation, and representation before the Board.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on infrastructure bond approval or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the infrastructure bond approval process requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Form 189 Filing: Assistance with Form 189 preparation and filing
- Compliance Advisory: Guidance on deployment and compliance requirements
- Representation: Representation before the Board
- Tax Planning: Strategic tax planning for infrastructure bonds
Contact us for expert legal guidance on your infrastructure bond matters.