Rule 288 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 288 of the Income-tax Rules, 2026 requires an Infrastructure Debt Fund to be an NBFC under the RBI framework, invest only in projects with a year of satisfactory operations or toll-operate-transfer projects, cap any project at 20% of corpus, and borrow for at least five years.
The form of the vehicle
Sub-rule (1) of rule 288: every Infrastructure Debt Fund under the rule shall be set up as a Non-Banking Financial Company conforming to and satisfying the conditions laid down in the regulatory framework provided by the Reserve Bank of India. The 1962 parallel is rule 2F.
The exemption in Schedule VII is therefore layered on a regulatory status, not merely a tax one. Compliance with the RBI framework is a continuing condition, and sub-rule (7) makes the tax consequence of losing it explicit.
What it may invest in
Sub-rule (2): the funds shall be invested only in:
- (a) post commencement operation date infrastructure projects which have completed at least one year of satisfactory commercial operations; or
- (b) toll-operate-transfer projects as the direct lender.
Both limbs of sub-rule (2) of rule 288 point away from greenfield lending. Limb (a) requires the project to be past its commencement of operations date and to have a full year of satisfactory commercial operations behind it — two separate tests, and the second is qualitative. Limb (b) covers toll-operate-transfer assets, which are by definition already built and operating, and requires the fund to be the direct lender rather than a participant behind another lender. The vehicle is designed to refinance operating infrastructure, releasing bank capital, not to fund construction.
How it may raise money
| Sl. No. | Manner of raising funds | Conditions |
|---|---|---|
| 1 | Issue rupee denominated bonds or foreign currency bonds | (a) In accordance with RBI directions and the relevant regulations under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000; and (b) where the investor is a non-resident, the original or initial maturity at the time of that investor's first investment shall not be less than five years |
| 2 | Issue zero coupon bonds | (a) In accordance with rule 7; and (b) the same five-year non-resident maturity condition |
| 3 | Raise funds through the loan route under external commercial borrowings | (a) In accordance with the directions of the Foreign Exchange Department of the RBI; and (b) tenor not less than five years, and not sourced from foreign branches of Indian banks |
All three funding routes in rule 288(3) carry a five-year minimum, which matches the tenor of the operating infrastructure assets the fund may lend against. Two details repay attention. For bonds the test is the original or initial maturity at the time of the non-resident's first investment — so a bond with eight years to run when first bought qualifies, and a later secondary purchase does not re-test it. And the ECB route bars borrowing from foreign branches of Indian banks, which would otherwise let domestic bank money return as external commercial borrowing and defeat the purpose of the route.
The two exposure limits
- Sub-rule (4) — concentration: investment in an individual project, or a project belonging to a group, shall not at any time exceed 20% of the corpus of the fund.
- Sub-rule (5) — related party: no investment in any project where the fund's specified shareholder, or the associated enterprise or the group of that specified shareholder, has a substantial interest.
Sub-rule (4) is tested "at any time", not at the year end — so a redemption that shrinks the corpus can breach the 20% limit without any new investment being made.
The definitions that give sub-rule (5) its reach
| Expression | Meaning under rule 288(8) |
|---|---|
| Specified shareholder | A non-banking financial company, a bank, or any other person holding, directly or indirectly, shares carrying not less than 30% of the voting power in the Infrastructure Debt Fund |
| Substantial interest | In a company — beneficial ownership (including that of one or more relatives, where the person is an individual) of shares, other than fixed-dividend shares, carrying not less than 10% of the voting power. In a concern other than a company — being beneficially entitled, at any time during the tax year, to not less than 20% of the income |
| Associated enterprise | As in section 162 |
| Concern | As in section 2(40) |
| Group | As in section 2(mm) of the SEBI (Mutual Funds) Regulations, 1996 |
| Corpus | The total funds of the Infrastructure Debt Fund raised for the purpose of investment |
| Relative | Spouse; brother or sister of the individual, of the spouse, or of either parent; any lineal ascendant or descendant of the individual or the spouse; the spouse of any of those; and any lineal descendant of a brother or sister of the individual or the spouse |
Sub-rule (5) of rule 288 looks narrow and is not. The trigger is a specified shareholder — anyone with 30% of the voting power in the fund, directly or indirectly — and the bar extends to that shareholder's associated enterprises and its whole group. On the other side, substantial interest needs only 10% of voting power in a company or 20% of income in another concern, and for an individual it aggregates the holdings of an extensive list of relatives. Screening a project therefore means mapping the sponsor group's interests, not merely checking the sponsor itself.
Return filing and the consequence of breach
Sub-rule (6): the Infrastructure Debt Fund shall file its return of income as required by section 263(1)(a) on or before the due date specified in section 263(1)(c).
Sub-rule (7): where the fund does not fulfil any of the conditions in this rule or the directions of the Reserve Bank of India, all provisions of the Act shall apply as if it is not an Infrastructure Debt Fund referred to in Schedule VII .
That is an all-or-nothing consequence attached to any condition, including the RBI directions that sit outside the tax rule entirely. There is no proportionate outcome and no provision for a temporary breach — which is why sub-rule (4)'s "at any time" wording matters so much.
Worked example
| Facts | Position under rule 288 |
|---|---|
| Fund set up as a trust rather than an NBFC | Outside sub-rule (1) |
| Lending to a road project ten months after operations began | Fails the one-year operating test |
| Direct lending to a toll-operate-transfer project | Permitted — limb (b) |
| Participating behind another lender in a TOT project | Limb (b) requires the fund to be the direct lender |
| Non-resident buys a bond with four years to maturity | Fails the five-year condition |
| ECB raised from a London branch of an Indian bank | Barred by the sourcing condition |
| Project exposure 18% of corpus; corpus later shrinks | Breach if it exceeds 20% at any time |
| Two projects in the same group totalling 24% of corpus | Breach — the limit is per project or group |
| Sponsor holds 32% of the fund and 12% of the borrower | Barred by sub-rule (5) |
| Any single condition breached | The Act applies as if it is not an IDF |
Compliance checklist
- Maintain NBFC status and continuing compliance with the RBI framework.
- Evidence one year of satisfactory commercial operations before lending under limb (a).
- Confirm the fund is the direct lender on any toll-operate-transfer exposure.
- Test the original or initial maturity at each non-resident's first investment.
- Keep ECBs at five years or more and away from foreign branches of Indian banks.
- Monitor the 20% of corpus limit continuously, per project and per group.
- Map every specified shareholder's associated enterprises and group before approving a project.
- File the return by the section 263(1)(c) due date, and treat any breach as a total loss of status under sub-rule (7).
Common mistakes
- Funding construction-stage projects.
- Counting the commencement date alone without the year of satisfactory operations.
- Re-testing bond maturity on a secondary purchase rather than at the first investment.
- Routing an ECB through an Indian bank's foreign branch.
- Testing the 20% limit only at year end.
- Screening only the sponsor and not its associated enterprises and group.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallel to rule 288 is rule 2F, given for tracing only. Verify the current text, Schedule VII and the RBI framework before relying on the status.