Asset Management Companies (AMCs) offering mutual fund schemes that invest in infrastructure projects can avail significant tax benefits 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 mutual fund approval to invest in eligible infrastructure issues. This guide explains the Form 190 process for AMCs.
The Mutual Fund Infrastructure Bond 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:
- Copy of certificate of registration issued by the Securities and Exchange Board of India
- 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 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.
The Approval Process
Step 1: Application Filing
The AMC 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
- Invest the rest of the capital in like manner within three years
- Submit a certificate from an accountant specifying the amount invested in each tax year
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
Practical Compliance for AMCs
1. Plan Infrastructure Investment
- Plan the infrastructure investment well in advance
- Identify eligible infrastructure facilities
- Ensure compliance with the 25% deployment rule
2. File Form 190
- File Form 190 with complete documentation
- Ensure the application is complete and accurate
3. Monitor Deployment
- Monitor deployment of capital to meet the one-year and three-year rules
- Maintain proper records
4. Submit Certificates
- Submit annual certificates from an accountant
- Ensure timely filing
5. Communicate with Investors
- Communicate the approval status to investors
- Explain the tax benefits available
Consequences of Non-Compliance
Withdrawal of Approval
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
Loss of Tax Benefits
If the approval is withdrawn:
- Subscribers may lose the benefit of deduction under Section 123
- The AMC may lose its approved status
Interest and Penalty
Failure to comply may result in interest and penalty.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on mutual fund infrastructure bond approval for AMCs. Our direct tax experts help AMCs understand 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 complex mutual fund infrastructure bond approval process for AMCs requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Form 190 Filing: Assistance with application preparation and filing
- Compliance Advisory: Guidance on deployment and compliance requirements
- Representation: Representation before the Board
- Tax Planning: Strategic tax planning for infrastructure investments
Contact us for expert legal guidance on your mutual fund infrastructure bond matters.