Infrastructure bonds are a critical instrument for mobilising long-term capital for infrastructure projects in India. The Direct Tax Code (DTC) 2025, through Schedule XV read with Rule 331 of the Income-tax Rules, 2026, provides a structured framework for the approval of infrastructure bond issues by public companies and mutual funds. Approval under this framework unlocks significant tax benefits for investors, making the process strategically important for capital-raising entities. This guide provides a complete walkthrough of the approval process.
The Statutory Framework — Schedule XV of the DTC
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. The relevant provisions for infrastructure bonds are:
Schedule XV (1)(z)(i) — Approval for Public Companies:
"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"
Schedule XV (1)(z)(ii) — Approval for Mutual Funds:
"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"
Key Definitions
- "Eligible issue of capital": An issue made by a public company formed and registered in India or a public financial institution where the entire proceeds 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": Shall have the same meaning as assigned to it in Section 2(71) of the Companies Act, 2013.
- "Mutual Fund": A Mutual Fund referred to in Schedule VII (Table: Sl. No. 20 or 21) of the DTC.
Rule 331 — The Approval Framework
Rule 331 of the Income-tax Rules, 2026 prescribes the detailed guidelines for granting approval under Schedule XV. Before granting approval, the Central Board of Direct Taxes (CBDT) must ensure that the applicant submits the prescribed application forms along with the required documents within the specified timelines.
Form 189 — Application for Public Companies
Public companies must apply for approval in Form No. 189.
Required Documents
- 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 lesser
Filing Timeline
The application must be filed three months before the "eligible issue of capital".
Form 190 — Application for Mutual Funds
Mutual funds must apply in Form No. 190. Approval through this process enables individuals investing in such mutual funds to claim deductions under Section 123 of the DTC.
Required Documents
- 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 lesser
Filing Timeline
The application must be filed three months before the public issue.
The Approval Process — Step by Step
Step 1: Application Filing
The entity (public company or mutual fund) must file the prescribed application form (Form 189 or Form 190) with the CBDT, accompanied by all required documents. The application must be filed at least three months before the proposed issue of capital.
Step 2: CBDT Review
The CBDT shall review the application and satisfy itself that:
- The application is complete in all respects
- The entity is eligible for approval
- The proposed use of funds is for eligible infrastructure purposes
Step 3: Approval or Rejection
The Board shall pass an order approving or denying the application. Any decision denying approval shall not be made without providing the applicant a reasonable opportunity of being heard.
Step 4: Investment Conditions (Post-Approval)
Once approval is granted, the applicant must invest the capital raised according to specified conditions:
25% Rule: At least 25% of the capital raised must be invested:
- In the infrastructure facility (public companies)
- In the eligible issue of capital of any company (mutual funds)
One-Year Rule: Such investment shall be made before the end of one year from the date of approval of the Board.
Three-Year Rule: The rest of the capital shall be invested in like manner within three years from the date of approval.
Step 5: Compliance Reporting
Every applicant shall submit a certificate from an accountant, as defined in Section 515(3)(b), specifying the amount invested in each tax year, from the date of approval of the Board.
Withdrawal of Approval
The Board shall have the power to withdraw the approval granted if the applicant:
- Fails to make investments as per the prescribed conditions; or
- Fails to file the certificate as required
Tax Benefits for Investors
The approval unlocks significant tax benefits for investors:
For Public Company Bond Investors
Subscribers to infrastructure bonds issued by approved public companies are eligible for deduction under Section 123 of the DTC, subject to the conditions specified in Schedule XV.
For Mutual Fund Unit Holders
Individuals investing in approved mutual funds become eligible for a tax deduction under Section 123 of the DTC. The approval for subscription to eligible capital issues is granted based on details filed in Form 190.
Practical Compliance Checklist
For Public Companies
- File Form 189 three months before the eligible issue of capital
- Attach certificate of incorporation and audited financial statements
- Obtain CBDT approval
- Invest 25% of capital in infrastructure facilities within one year
- Invest remaining capital within three years
- Submit annual accountant's certificate
For Mutual Funds
- File Form 190 three months before the public issue
- Attach SEBI registration certificate and audited financial statements
- Obtain CBDT approval
- Invest 25% of capital in eligible issue of capital within one year
- Invest remaining capital within three years
- Submit annual accountant's certificate
Consequences of Non-Compliance
Withdrawal of Approval
Failure to comply with investment conditions or certificate filing requirements may result in withdrawal of approval.
Loss of Tax Benefits
If approval is withdrawn, investors may lose the benefit of deduction under Section 123.
Interest and Penalty
Non-compliance may also result in interest on tax benefits claimed and penalty for incorrect claims.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on infrastructure bond approval for public companies and mutual funds. Our direct tax experts help entities navigate the approval process, file Forms 189 and 190 correctly, and ensure compliance with deployment requirements. We assist in application preparation, documentation, and representation before the CBDT.
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 complex infrastructure bond approval process requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Form 189/190 Filing: Assistance with application preparation and filing
- Compliance Advisory: Guidance on deployment and compliance requirements
- Representation: Representation before the CBDT
- Tax Planning: Strategic tax planning for infrastructure investments
Contact us for expert legal guidance on your infrastructure bond matters.