The income-tax department has given its nod for NHAI, IRFC, HUDCO and PFC to cumulatively issue tax-free bonds to the tune of Rs 30,000 crore during 2011-12.
Both National Highways Authority of India (NHAI) and Indian Railway Finance Corporation (IRFC) have been allowed to issue tax free bonds of Rs 10,000 crore each during current fiscal. Housing and Urban Development Corporation (HUDCO) and Power FinanceCorporation (PFC) can issue tax free bonds for Rs 5,000 crore each, the central board of direct taxes (CBDT) has said.
Fund raising
The Finance Ministry move to allow these entities to issue tax free bonds would pave the way for them to raise long term resources, which are crucial for infrastructure development.
The tenure of the tax free bonds, which will have to be secured, redeemable and non-convertible, will have to be ten or fifteen years.
The bonds can be issued to the public or through private placement route. However, in both cases, the commission paid on sale of such bonds has been capped.
Interest on bonds
The CBDT has also stipulated that the interest on bonds should not be less than hundred basis points lower than the yield on government securities of equivalent residual maturity as reported by Fixed Income Money Market and Derivatives Association (FIMMDA) on the last working day of the month preceding the month of issue of bonds.
But in the case of public issue, the interest on bonds will not beless than 50 basis points lower than the yield on government securities of equivalent residual maturity, the CBDT has said.