The Direct Tax Code (DTC) 2025 provides for the withdrawal of approval granted to public companies and mutual funds for infrastructure bonds and investments. Understanding the triggers for withdrawal is essential for entities seeking to maintain their approved status and the associated tax benefits. This guide explains the grounds for withdrawal, the procedural requirements, and the consequences.
The Statutory Framework
Rule 331 — Withdrawal of Approval
Rule 331 of the Income-tax Rules, 2026 provides that the Board shall have the power to withdraw the approval granted if the applicant:
- Fails to make investments as per the conditions; or
- Fails to file the certificate as required
Schedule XV — Approval Conditions
Schedule XV of the DTC specifies the conditions subject to which approval is granted, including:
- Deployment of capital in infrastructure facilities
- Filing of annual certificates
- Compliance with all conditions
Grounds for Withdrawal
1. Failure to Make Investments
The Board may withdraw approval if the entity fails to make investments as per the conditions, including:
One-Year Rule Failure
Failure to invest 25% or more of the capital raised in the infrastructure facility before the end of one year from the date of approval.
Three-Year Rule Failure
Failure to invest the rest of the capital in like manner within three years from the date of approval.
Investment in Ineligible Infrastructure
Investment in infrastructure facilities that do not meet the eligibility criteria.
Shortfall in Investment
Investment of less than the required amount in eligible infrastructure facilities.
2. Failure to File Certificate
The Board may withdraw approval if the entity fails to file the required certificate from an accountant, specifying the amount invested in each tax year.
Certificate Filing Failure
- Non-filing of the annual certificate
- Filing of incomplete certificate
- Filing of incorrect certificate
Certificate Content Issues
- Certificate not in the prescribed format
- Certificate not duly signed and verified
- Certificate not from a qualified accountant
3. Other Grounds
The Board may also withdraw approval on other grounds, including:
- Misrepresentation of facts in the application
- Non-compliance with any condition of approval
- Change in circumstances affecting eligibility
- Any other ground as may be specified
Procedural Requirements
Notice
Before withdrawing approval, the Board shall provide a reasonable opportunity of being heard to the entity.
Hearing
The entity shall be given an opportunity to:
- Present its case
- Submit documents
- Provide explanations
- Address the concerns
Order
The withdrawal of approval shall be by an order in writing, specifying:
- The grounds for withdrawal
- The effective date of withdrawal
- The consequences of withdrawal
Consequences of Withdrawal
For the Entity
Loss of Approved Status
The entity loses its approved status for the infrastructure bond issue.
Ineligibility for Future Approvals
The entity may become ineligible for future approvals for a specified period.
Reputational Damage
Withdrawal of approval may cause reputational damage to the entity.
Regulatory Scrutiny
The entity may face increased regulatory scrutiny.
For Subscribers
Loss of Tax Benefits
Subscribers may lose the benefit of deduction under Section 123 for their investments.
Disallowance of Deduction
Deductions claimed may be disallowed in assessment proceedings.
Interest and Penalty
Subscribers may be liable for interest and penalty on the disallowed deductions.
Prosecution
In cases of wilful default, subscribers may face prosecution.
For the Entity (Continued)
Interest and Penalty
The entity may be liable for interest and penalty on the tax benefits claimed.
Prosecution
In cases of wilful default, the entity may face prosecution.
Prevention of Withdrawal
Compliance Monitoring
Entities should:
- Monitor compliance with all conditions
- Track deployment of capital
- Ensure timely filing of certificates
- Maintain proper records
Early Identification of Issues
Entities should:
- Identify potential issues early
- Take corrective action promptly
- Communicate with the Board
- Seek extensions if needed
Documentation
Entities should:
- Maintain proper documentation
- Keep records of all compliance activities
- Document any issues and their resolution
- Preserve all communication with the Board
Appeal Against Withdrawal
Right to Appeal
The entity may have the right to appeal against the withdrawal of approval, subject to the provisions of the DTC.
Grounds of Appeal
The entity may appeal on grounds including:
- The withdrawal is not justified
- The procedural requirements were not followed
- The entity has complied with all conditions
- The withdrawal is disproportionate
Time Limit
The appeal must be filed within the prescribed time limit.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on infrastructure bond approval withdrawal. Our direct tax experts help entities understand the grounds for withdrawal, comply with conditions, and navigate the regulatory framework. We assist in compliance monitoring, 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 framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Compliance Monitoring: Guidance on maintaining compliance
- Risk Management: Mitigating the risk of withdrawal
- Representation: Representation before the Board
- Appeal: Assistance with appeals against withdrawal
Contact us for expert legal guidance on your infrastructure bond matters.