Insurance companies and insurance-linked investment vehicles are significant investors in infrastructure projects. The Direct Tax Code (DTC) 2025 provides tax benefits for investment in infrastructure bonds issued by public companies under Section 123 and Schedule XV. This guide analyses the infrastructure bond approval process and its relevance for insurance-linked investment vehicles.
The Infrastructure Bond 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.
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:
- Copy of certificate of incorporation under the Companies Act, 2013
- 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
Deployment Requirements
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
Relevance for Insurance-Linked Investment Vehicles
1. Investment Eligibility
Insurance companies and insurance-linked investment vehicles can invest in infrastructure bonds issued by approved public companies, subject to:
- IRDAI investment regulations
- Asset-liability management considerations
- Risk-return profile
2. Tax Benefits
Investors in infrastructure bonds (including insurance companies) may be eligible for deduction under Section 123, subject to:
- The issue is approved by the Board
- The investor is eligible under Schedule XV
- The conditions specified in Schedule XV are fulfilled
3. Infrastructure Investment
Insurance companies have significant infrastructure investment mandates:
- IRDAI encourages investment in infrastructure
- Infrastructure bonds provide long-term investment opportunities
- Tax benefits enhance returns
4. Portfolio Diversification
Infrastructure bonds offer insurance-linked investment vehicles:
- Long-term investment horizon matching insurance liabilities
- Stable returns
- Portfolio diversification
Practical Compliance
1. Identify Eligible Investments
- Identify infrastructure bonds issued by approved public companies
- Verify that the issue is approved by the Board
- Assess the credit quality and risk-return profile
2. Claim Tax Benefits
- Claim deduction under Section 123 in the tax return
- Ensure all conditions are fulfilled
- Maintain proper documentation
3. Monitor Compliance
- Monitor the issuer's compliance with deployment requirements
- Ensure the issuer maintains the approval status
- Track the investment performance
Consequences of Non-Compliance
Loss of Tax Benefits
If the issuer fails to comply with the conditions:
- The approval may be withdrawn
- Investors may lose the benefit of deduction under Section 123
- Interest and penalty may be levied
Regulatory Action
Non-compliance may result in regulatory action from IRDAI.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on infrastructure bond investment for insurance-linked vehicles. Our direct tax experts help insurance companies understand the infrastructure bond framework, identify eligible investments, and navigate the regulatory framework. We assist in investment analysis, documentation, and representation before income-tax authorities.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on infrastructure bond investment or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex infrastructure bond approval framework for insurance-linked investment vehicles requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Investment Analysis: Guidance on eligible infrastructure bond investments
- Tax Planning: Assistance with claiming tax benefits
- Documentation: Assistance with documentation and compliance
- Representation: Representation before income-tax authorities
Contact us for expert legal guidance on your infrastructure bond investment matters.