At the 18th BRICS Summit in New Delhi, the conversation around de-dollarization shifted from abstract geopolitical rhetoric to concrete financial strategy. While member nations stopped short of introducing a unified BRICS currency, they issued a clear directive to the New Development Bank (NDB): expand local-currency financing and bolster resource mobilization. Often referred to as the ‘BRICS bank’, the NDB is emerging as a powerful alternative to traditional Western-dominated multilateral institutions. However, behind the macroeconomic headlines of local-currency lending lies a complex web of tax compliance, Goods and Services Tax (GST) liabilities, and cross-border regulatory considerations that will shape how these infrastructure projects are executed on the ground.
The Strategic Pivot to Local-Currency Financing
Established in 2015 by Brazil, Russia, India, China, and South Africa, the Shanghai-headquartered NDB was built with an authorized capital of $100 billion. Over the years, the bank has expanded its membership to include Bangladesh, the United Arab Emirates (UAE), Egypt, Algeria, and most recently, Uzbekistan in June 2026. With Uruguay, Colombia, Ethiopia, Angola, and Zimbabwe waiting in the wings as prospective members, the bank’s operational scale is growing rapidly. As of June 30, 2026, the NDB had approved 141 projects representing approximately $44 billion in cumulative financing, with disbursements reaching $25 billion.
To fund these initiatives, the NDB is increasingly prioritizing local-currency financing, aiming to raise this share to 30% of its overall lending portfolio. By registering bond programs with national regulators and issuing local bonds to domestic institutional investors, the NDB can lend directly in national currencies. This approach bypasses US dollar conversion entirely, shielding both the bank and the borrower from foreign exchange volatility. This financial architecture aligns closely with broader regional efforts, such as unlocking BRICS trade finance through integrated compliance and payment mechanisms.
Taxation of Local-Currency Financing: Eliminating FX Tax Volatility
From a corporate tax perspective, the transition to local-currency lending offers substantial compliance advantages. Traditional foreign currency-denominated loans expose borrowers to significant foreign exchange (FX) fluctuations. Under Indian income tax laws, realized foreign exchange gains or losses must be accounted for under Section 43A of the Income Tax Act or general accounting standards, often leading to volatile tax liabilities and complex compliance reconciliations at the end of the fiscal year.
When the NDB provides funding directly in Indian Rupees (INR)—such as through its upcoming onshore rupee-denominated ‘Maharaja Bond’—it effectively eliminates these FX-related tax complexities for Indian public and private sector borrowers. Because the loan principal and interest payments are denominated in the local currency, corporate tax teams do not have to grapple with the tax treatment of unrealized exchange differences, restatement of liabilities, or complex hedging derivative tax rules. This predictability is highly beneficial for long-term infrastructure planning, where sudden currency depreciations can otherwise trigger unexpected tax burdens or distort capital asset valuations.
GST and Works Contract Compliance in India’s Infrastructure Projects
The NDB’s portfolio in India is extensive, with $9.5 billion approved across 32 initiatives since 2016. These projects span critical public works, including the Delhi-Ghaziabad-Meerut Regional Rapid Transit System (RRTS), metro rail projects in Chennai, Mumbai, and Indore, and rural road networks in Bihar and Gujarat. However, executing these massive projects requires navigating India’s rigorous GST framework.
Under Indian GST law, infrastructure development is typically classified as a ‘works contract’ service, which is treated as a composite supply of both goods and services. Managing GST compliance on these multi-billion-rupee contracts is a major challenge for developers:
- Input Tax Credit (ITC) Blockages: Section 17(5)(c) and (d) of the CGST Act blocks Input Tax Credit on goods or services received for the construction of an immovable property on one’s own account. While exceptions exist for plant and machinery, public infrastructure projects must carefully structure their contracts to avoid trapped ITC, which directly inflates project costs.
- Cascading Cost Pressures: Infrastructure projects are highly sensitive to price changes in raw materials like cement and steel. When combined with high GST rates on specific inputs, any inefficiencies in claiming ITC can exacerbate financial strain, a reality closely linked to broader economic pressures such as those discussed in the analysis of August WPI inflation climbing to 9.92%.
- Sub-Sovereign and Private Sector Borrowers: While sovereign entities may benefit from specific tax concessions, private and sub-sovereign entities funded by the NDB (such as Piramal Finance or Shriram Finance) must comply with standard commercial GST rates and filing deadlines, requiring robust compliance systems to prevent cash flow blockages.
Withholding Taxes and Cross-Border Financial Compliance
As a multilateral development bank, the NDB enjoys certain sovereign tax exemptions under its founding charter and host country agreements. However, the issuance of domestic bonds, like the Maharaja Bond, introduces distinct domestic tax compliance requirements for investors and intermediaries. Interest income generated from these bonds is subject to domestic income tax laws, and institutional investors must ensure proper compliance with Tax Deducted at Source (TDS) provisions.
Furthermore, when cross-border entities are involved in project execution or advisory roles, withholding tax (WHT) on technical services or interest payments becomes a critical factor. Navigating these treaty-based exemptions requires a deep understanding of international taxation, similar to the principles analyzed in the Delhi High Court’s ruling on tax refunds to Teva Israel, which highlighted the strict boundaries of cross-border treaty compliance and the necessity of valid documentation to claim tax benefits.
Conclusion: Navigating the Tax Realities of the Second Golden Decade
As the NDB enters what it describes as its ‘second golden decade’, its focus on local-currency financing and domestic bond issuances will undoubtedly reshape developmental finance across emerging economies. By reducing reliance on foreign currencies, the bank provides much-needed stability to long-term projects. However, the ultimate success of these NDB-funded initiatives in India will depend on how effectively project developers, financial intermediaries, and government bodies manage the underlying GST, ITC, and direct tax compliance obligations. In the world of mega-infrastructure, sustainable development is impossible without robust tax compliance.
Frequently Asked Questions
The New Development Bank (NDB) is a multilateral development bank established in 2015 by the original BRICS countries: Brazil, Russia, India, China, and South Africa. It is headquartered in Shanghai.
The five founding members (Brazil, Russia, India, China, and South Africa) each hold equal shares of 18.72% of the total subscribed capital. Among the newer members, Egypt holds 2.24%, Bangladesh holds 1.76%, Algeria holds 1.15%, the UAE holds 1.04%, and Uzbekistan holds 0.23%. No single member holds veto power.
The NDB promotes local-currency financing by raising funds directly in domestic capital markets and lending those same national currencies to borrowers. This eliminates US dollar conversion, ensuring that neither the bank nor the borrower faces foreign exchange volatility or currency mismatch risks. The bank aims to increase local-currency financing to 30% of its overall lending portfolio.
Since 2016, the NDB has approved $9.5 billion for 32 initiatives in India spanning clean energy, transport infrastructure (such as the Delhi-Ghaziabad-Meerut RRTS and Chennai, Mumbai, and Indore metros), water and sanitation, and social development. Its next major step is advancing its first onshore Indian rupee-denominated 'Maharaja Bond' with support from the Indian government and the Reserve Bank of India (RBI).
