Why SEBI Introduced HoldCo Layer in InvITs: Evolution, Structure & Tax Treatment

Summary: The introduction of the Holding Company (HoldCo) layer marked an important development in India’s Infrastructure Investment Trust (InvIT) framework. When the original SEBI InvIT Regulations were introduced in 2014, the contemplated investment structure involved an InvIT directly holding project-specific Special Purpose Vehicles (SPVs). However, existing infrastructure businesses frequently operated through intermediate holding companies because of concession agreements, lender security arrangements, project financing, shareholder rights and transaction-related considerations. Following industry representations and consultation, SEBI amended the framework in 2016 to accommodate HoldCo structures while introducing safeguards concerning ownership, governance, underlying SPVs and cash-flow distributions. Market practice indicates that HoldCos remain an optional structuring mechanism rather than a universal requirement, with some InvITs combining direct SPV holdings and indirect investments through HoldCos. The article examines the original proposal, modifications following consultation, contemporary examples and the evolution of dividend taxation, including Section 80M of the Income-tax Act, 1961 and the corresponding provisions under the Income-tax Act, 2025. The central distinction is that the HoldCo structure offers commercial flexibility while preserving regulatory oversight, and that tax treatment continues to depend upon the character of income and the relevant entities rather than the HoldCo designation alone.

Introduction

An InvIT may hold its infrastructure investments in two ways. It may directly hold an SPV which owns the infrastructure project, or it may invest through an intermediate Holding Company (“HoldCo”), which in turn holds one or more underlying SPVs.

The HoldCo layer, however, was not part of the original InvIT framework introduced in 2014. It was subsequently added after market participants represented to SEBI that the original structure did not fully accommodate the manner in which infrastructure businesses were actually organised in India. The introduction of the HoldCo therefore represents an important stage in the evolution of the InvIT framework.

This article looks at why the HoldCo layer became necessary, the concerns considered by SEBI while allowing it, how the structure is being used by InvITs today and, how the tax framework has adapted to this additional layer

How did the HoldCo layer come into the picture?

Under the original InvIT Regulations, an SPV was required to hold at least 90% of its assets directly in infrastructure projects and was not permitted to invest in another SPV. Thus, the structure originally contemplated was broadly:

InvIT

↓

SPV

↓

Infrastructure Project

After the Regulations were notified, market participants represented to SEBI that this structure did not always match the manner in which infrastructure businesses were actually organised.

SEBI’s consultation paper dated August 20, 2015, recorded that infrastructure assets in India were commonly held through different project-specific SPVs, with promoters often creating one or more holding companies above these SPVs. In some cases, separate Holdco were also used for different categories of projects, such as operational and under-construction assets. Market participants therefore requested that an InvIT should be permitted to acquire the infrastructure portfolio through the existing Holdco instead of necessarily acquiring each SPV directly.

The industry identified the following practical reasons for permitting such a structure:

• Restrictions under concession agreements: In infrastructure projects, particularly PPP projects, the concession agreement may restrict a direct change in control of the project SPV. If the InvIT were required to directly acquire the SPV, such a restriction could make the transaction difficult or even prevent it. A transfer at the Holdco level could, depending upon the contractual terms, allow the existing project SPV structure to continue without disturbing the concession arrangement.
• Consent requirements under project contracts: Certain project agreements, such as Power Purchase Agreements in the power sector, may require prior consent where there is a direct change in control of the project SPV. Obtaining such consents for several SPVs could make the InvIT transaction more time-consuming and operationally difficult. Retaining the existing Holdco–SPV structure could reduce the need for restructuring each project company separately.
• Existing lender security over SPV shares: Infrastructure projects are commonly financed on a project-finance basis, under which lenders may have a pledge over the shares of the project SPV. If the InvIT were to directly hold those shares, the InvIT’s investment itself could become subject to such lender security. Market participants therefore considered it preferable in some cases to preserve the lender security at the existing HoldCo–SPV level rather than bringing it directly onto the InvIT’s holding.
• Tax, financing and investor-exit considerations: Market participants also pointed to possible tax inefficiencies, lender-related issues and difficulties in providing an exit to existing financial investors if the existing HoldCo could not be retained. Requiring every portfolio to be reorganised into a direct InvIT–SPV structure could therefore involve both transaction costs and commercial complications.

Thus, the request for a HoldCo was not simply a request to permit another corporate layer. The broader concern was that the InvIT Regulations should be capable of accommodating existing infrastructure ownership and financing structures without requiring unnecessary restructuring of the underlying projects

How did SEBI’s original HoldCo proposal change after consultation?

When SEBI first proposed the HoldCo structure in August 2015, it sought to permit one additional layer between the InvIT and the underlying SPVs, but subject to conditions intended to preserve the InvIT’s control over the infrastructure assets. Comments received during the consultation process led SEBI to modify some of these conditions before the HoldCo framework was finally introduced. The important changes are summarised below:

Yes. The content can be retained while cutting repetition and making each cell more direct.

The comments received on SEBI’s original proposal show that the challenge was two-sided. On one hand, the proposed HoldCo had to be flexible enough to accommodate existing infrastructure structures. For this reason, the final framework moved away from treating the HoldCo merely as a passive entity holding SPVs and allowed it to directly hold infrastructure projects and undertake activities pertaining or incidental to such holdings. The distribution requirement was also modified so that the HoldCo could retain a limited portion of cash generated from its own activities, while cash received from underlying SPVs continued to be required to flow entirely upwards to the InvIT.

At the same time, allowing an additional layer also increased the need for control and oversight. Therefore, while greater flexibility was given at the HoldCo level, the governance requirements were strengthened—for example, the original requirement of having only one authorised representative on the board of an underlying SPV was replaced with a requirement for majority board representation. The final framework therefore represented a balance between commercial flexibility on one side and control, governance and cash-flow protection on the other.

How is the HoldCo structure being used today?

The HoldCo has now been part of the InvIT Regulations for almost a decade. However, market practice shows that it has not become the default structure for every InvIT.

SEBI’s register presently contains 27 registered InvITs. A review of the latest publicly available structures identified six InvITs presently using a disclosed HoldCo layer. Securities and Exchange Board of India

This table tells us something interesting. The HoldCo is not merely an additional layer used by every InvIT. Its utility becomes more visible where a portfolio contains a number of project-specific entities which can be held through an intermediate corporate structure. Citius and IndiGrid are good examples of this use.

Importantly, an InvIT does not have to choose exclusively between a direct-SPV structure and a HoldCo structure. Both can exist within the same InvIT.

Sustainable Energy Infra Trust (“SEIT”) provides a good example of an InvIT using both structures at the same time. SEIT directly holds two SPVs—Emergent Solren Private Limited and Mega Suryaurja Private Limited. In addition, SEIT directly holds Megasolis Renewables Private Limited, which functions as the HoldCo. Megasolis Renewables, in turn, holds three underlying SPVs—Astra Solren Private Limited, Neo Solren Private Limited and Brightsolar Renewable Energy Private Limited. Thus, in the same InvIT structure, some project SPVs are held directly by SEIT, while another group of project SPVs is held indirectly through the HoldCo, Megasolis Renewables

Its investment structure can therefore broadly be represented as:

SEIT

Direct route:

→ Emergent Solren

→ Mega Suryaurja

HoldCo route:

→ Megasolis Renewables

↓

Astra Solren

Neo Solren

Brightsolar Renewable Energy

This shows that the HoldCo is not necessarily an alternative to the direct-SPV structure. It can operate alongside direct holdings within the same InvIT, depending upon the manner in which individual assets or groups of assets are structured.

Market practice therefore suggests that the HoldCo is being used as a flexibility mechanism rather than a default layer. This is broadly consistent with the reason for its introduction—the Regulations permit the InvIT to retain or accommodate an intermediate holding structure where the underlying commercial structure requires it.

The tax angle – did tax law also adapt to the HoldCo?

Tax was one of the issues SEBI itself identified when the HoldCo structure was being considered. In 2016, the tax framework had largely been designed around a single SPV → Business Trust structure. SEBI specifically noted that adding another corporate layer could have tax implications because the then-existing dividend distribution tax concessions applied to distributions by the SPV to the business trust.

The position subsequently became more accommodating. With effect from 2020, Dividend Distribution Tax was abolished and section 80M of the Income-tax Act, 1961 provided a deduction for inter-corporate dividends to the extent the receiving domestic company redistributed the dividend within the prescribed period. This helped reduce the cascading tax effect where dividend moved SPV → HoldCo → InvIT. The Income-tax Act, 2025, applicable from April 1, 2026, continues this principle through section 148, while section 223 read with Schedule V continues the special business-trust framework for qualifying income received from an SPV. Etds

The framework was further changed in August 2026 so that the exemption of qualifying dividend in the hands of a business-trust unitholder is no longer dependent on whether the SPV has opted for the concessional corporate tax regime under section 200.

Thus, tax law has over time reduced some of the tax friction caused by an additional corporate layer, particularly for dividend flows. However, it has not created a separate tax pass-through merely because an entity is called a “HoldCo” under the InvIT Regulations. The nature of the income and the entities through which it moves therefore continue to matter.

Conclusion

The introduction of the HoldCo layer shows how the InvIT framework has developed in response to practical market requirements. The original Regulations contemplated a relatively direct relationship between the InvIT and the project SPV. However, existing infrastructure businesses were often already organised through holding companies because of concession requirements, financing arrangements, contractual restrictions and other commercial considerations.

SEBI therefore permitted the additional layer, but with safeguards intended to ensure that the InvIT continued to retain control over the underlying SPVs and that cash flows, governance and regulatory oversight were not diluted merely because another entity had been inserted in the structure.

Current market practice also shows that the HoldCo has remained an optional structuring tool rather than becoming the standard InvIT structure. Some InvITs hold several SPVs through HoldCos, some continue to hold SPVs directly and some use both structures simultaneously. The HoldCo framework therefore reflects an attempt to give InvITs structural flexibility while preserving visibility and control over the infrastructure assets ultimately held for the benefit of unitholders.

Rutuja Umadikar – Deputy Manager