Private banks, NBFCs allowed to offer tax-free bonds

24 Mar 2010

1

India's private banks and non-banking finance companies (NBFC) are set to join a list of select state owned firms that will allowed to offer tax-free bonds to investors, as the government looks to broadbase its avenues to raise long-term funds to set up more roads, ports and power plants.

So far only state-owned companies had been allowed to issue such bonds but given the constraints in financing key projects, the government has decided to open up the window for issuing tax-free infrastructure bonds to private firms also.

This year's budget proposals include provision for investors to put their money in tax-free infrastructure bonds over and above the ceiling of Rs1 lakh. Investors who park funds in the proposed infrastructure bonds would be eligible for a tax break of Rs20,000 annually. However, the bonds would be of long tenure exceeding 10 years.

The RBI has recently introduced a new category of NBFCs - 'Infrastructure Finance Companies (IFCs)' focused on lending to the infrastructure sector.

These specialised NBFCs are likely to be the first to issue such bonds. The cost of funds raised through such bonds would be low with the rate of interest offered being low, but investors could effectively look to reaping high returns due to tax benefits,

According to analysts, a number of government-owned entities have come out with tax-free bonds at 7.5 per cent. If a private sector entity were to float such bonds, the cost could work out to 8-9 per cent which is still lower than raising money from banks at close to 11 per cent, they say,.

Business History Videos

History of hovercraft Part 3...

Today I shall talk a bit more about the military plans for ...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of hovercraft Part 2...

In this episode of our history of hovercraft, we shall exam...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Hovercraft Part 1...

If you’ve been a James Bond movie fan, you may recall seein...

By Kiron Kasbekar | Presenter: Kiron Kasbekar

History of Trams in India | ...

The video I am presenting to you is based on a script writt...

By Aniket Gupta | Presenter: Sheetal Gaikwad

view more