Tax-free infra bonds to have 10yr-plus tenure

The tax-free infrastructure bonds proposed in this year's budget will have a minimum tenure of ten years and a lock-in period of at least five years, allowing lenders to raise the much-needed long-term funds for the sector.




The guidelines issued by the government said that only a select financial institutions will be allowed to issue these long-term infrastructure bonds.

Industrial Finance Corporation of India, Life Insurance Corporation of India, Infrastructure Development Finance Company (IDFC) and non-banking finance companies lending exclusively to the infrastructure sector will be eligible to issue these bonds initially. The banks have not been allowed access to these bonds.

"These bonds provide an additional avenue to raise long-term funds for the infrastructure sector and to intermediate retail savings and channelise them into infrastructure sectors," said Vikram Limaye, executive director and member of the board of directors, IDFC.

The government expects a $500 billion investment in infrastructure in the 11th Five-Year Plan ending March 2012, and has doubled the target to over $1 trillion for the 12th Five-Year Plan, 2012-17.

An investment up to a maximum of Rs20,000 in these bonds will be eligible for tax benefits. The amount invested in these bonds will be allowed to be deducted from the income of the tax payers.

This Rs20,000 investment in the infrastructure bonds is outside the Rs1 lakh maximum deduction allowed for investment in various schemes covered under sections 80C, 80CCC and 80CCD of the I-T Act. The yield would be linked to the government securities of comparative residual maturity.

The investors will be able to exit these bonds only after five years on the secondary market if they are traded or go in for redemption. The investors will also be able to raise debt from the banks by pledging or hypothecating these bonds after the five-year lock-in.

There is a restriction on the amount these lenders can raise through these bonds - a maximum of 25% of their incremental lending to infrastructure sector over the previous financial year. They will also have to lend the funds so raised only to infrastructure sector, as defined by the Reserve Bank of India.


IDFC closed at Rs185.15, up by 0.35%, with a volume of 12.00 lakh shares on the BSE.

GMR Infrastructure closed at Rs59.65, up by 1.27%, with a volume of 4.64 lakh shares on the BSE.