Mutual Fund Infrastructure Bond Approval

Mutual Funds seeking to offer tax-efficient infrastructure investment options must obtain approval under the Direct Tax Code (DTC) 2025. Schedule XV (1)(z)(ii) read with Rule 331 of the Income-tax Rules, 2026 provides the framework for this approval. This guide explains the approval process, Form 190 filing, and the 25% deployment rule.

The Statutory Framework

Schedule XV (1)(z)(ii) — Approval for Mutual Funds

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 any units of any mutual fund referred to in Schedule VII (Table: Sl. No. 20 or 21) and approved by the Board on an application made by such mutual fund"

Purpose of Approval

Securing approval is crucial because contributions made to such approved Mutual Funds by individuals become eligible for a tax deduction under Section 123 of the DTC.

Mutual Fund Definition

A "Mutual Fund" means a Mutual Fund referred to in Schedule VII (Table: Sl. No. 20 or 21) of the DTC.

Form 190 — Application for Approval

Purpose of Form 190

Form 190 is the prescribed application form for Mutual Funds seeking approval to invest in eligible issue of public companies under Schedule XV (1)(z)(ii).

Filing Requirements

Rule 331 of the Income-tax Rules, 2026 prescribes the following requirements:

Form: Application must be made in Form No. 190
Documents: The application must be accompanied by specified documents

Required Documents

Document	Description
SEBI Registration Certificate	Copy of certificate of registration issued by the Securities and Exchange Board of India
Audited Financial Statements	Audited balance sheet and profit and loss account 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 Mutual Fund must file Form 190 with the prescribed authority.

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 Mutual Fund
Assess the proposed investment strategy

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 Mutual Fund must:

Invest 25% or more of the investible capital in the infrastructure facility before the end of one year from the date of approval by the Board
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

The 25% Deployment Rule

One-Year Rule

25% or more of the investible capital shall be invested in the infrastructure facility specified in sub-section (12) of section 80-IA, etc., before the end of one year from the date of approval by the Board.

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

Three-Year Rule

The rest of the capital must be invested in like manner within three years from the date of approval.

Tax Implications

Deduction for Subscribers

Subscribers to the approved Mutual Fund 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 Mutual Fund is approved by the Board
The subscriber is eligible under Schedule XV
The conditions specified in Schedule XV are fulfilled

Disallowance of Deduction

If the Mutual Fund fails to comply with the deployment requirements, the approval may be withdrawn, and subscribers may lose the benefit of deduction.

Compliance Requirements

Annual Certificate

The Mutual Fund 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 Mutual Fund must maintain records of:

The investible capital
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 Mutual Fund:

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 Mutual Fund.

Practical Compliance

For Mutual Funds

Mutual Funds should:

Plan the infrastructure investment well in advance
File Form 190 with complete documentation
Comply with deployment requirements
Submit annual certificates
Maintain proper records

For Investors

Investors should:

Verify that the Mutual Fund 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 mutual fund infrastructure bond approval. Our direct tax experts help Mutual Funds navigate the approval process, file Form 190 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 mutual fund infrastructure bond approval or any other direct tax matter, please consult qualified legal professionals.

Need Expert Legal Guidance?

Navigating the mutual fund infrastructure bond approval process requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:

Form 190 Filing: Assistance with Form 190 preparation and filing
Compliance Advisory: Guidance on deployment and compliance requirements
Representation: Representation before the Board
Tax Planning: Strategic tax planning for infrastructure investments

Process Guidemutual fund infrastructure bondForm 190 approvalSchedule XV mutual fundmutual fund approval Form 190eligible issue capital mutual fundForm 190 filingmutual fund infrastructure investmentSchedule XV(1)(z)(ii)mutual fund approval processForm 190 documentsmutual fund SEBI registrationmutual fund audited financialsmutual fund approval timelinemutual fund infrastructure deploymentmutual fund one-year rulemutual fund three-year rulemutual fund investment certificatemutual fund approval withdrawalmutual fund tax deductionSection 123 mutual fundmutual fund subscriber deductionmutual fund approval Boardmutual fund capital deploymentmutual fund infrastructure facilitymutual fund eligible issuemutual fund approval conditionsmutual fund investment compliancemutual fund certificate filingmutual fund approval revocationmutual fund investment failuremutual fund approval groundsmutual fund approval proceduremutual fund documentationmutual fund due diligencemutual fund compliancemutual fund tax planningmutual fund infrastructure bondsmutual fund approval guidemutual fund Form 190 processmutual fund investment rules

Mutual Fund Infrastructure Bond Approval — Form 190 and the 25% Deployment Rule