Decks have been cleared for issuance of tax-free infrastructure bonds worth Rs. 25,000 crore (Rs. 250 billion) in 2011-12 by three government undertakings - National Highway Authority of India, Railway Finance Corporation and HUDCO. A senior finance ministry official said the economic affairs department cleared the proposals on Friday.
"The proposals have now been sent to the Central Board of Direct Taxes for final notification, which is expected within a week," he added.
NHAI has got the go-ahead to issue tax-free bonds to raise Rs. 10,000 crore (Rs. 100 billion).
The Railway Finance Corporation proposal has also received the clearance for the same amount. HUDCO has been allowed to go for bonds worth Rs. 5,000 crore (Rs. 50 billion).
The official said the proposal for Rs. 5,000 crore (Rs. 50 billion) bonds for ports was yet to come and a reminder had been sent to the shipping ministry.
This will benefit those waiting to get an additional tax benefit on their savings through this route.
In order to promote savings and raise funds for infrastructure, the window for an additional tax exemption of Rs. 20,000 for investment in long-term infrastructure bonds, which was notified in 2010-11,
has been extended for one more year in the Budget.
Finance Minister Pranab Mukherjee in his Budget speech had proposed for issuance of the tax-free bonds by the government undertakings.
"In order to give a boost to infrastructure development in railways, ports, housing and highways development, I propose to allow tax free bonds of Rs. 30,000 crore (Rs. 300 billion) to be issued by various government undertakings in 2011-12," he had said.
The measure is part of a comprehensive package to facilitate funds for the infrastructure sector.
Creation of infrastructure debt funds is also included in this exercise.
The finance ministry is set to come out with a scheme to allow participation of trusts and companies in the scheme in June.
The government has fixed an allocation of over Rs. 2,14,000 crore (Rs. 2,140 billion) for the infrastructure sector, which is 23.3 per cent higher than the previous year.
This amounts to 48.5 per cent of the Gross Budgetary Support to plan expenditure.
A comprehensive policy that can be used by the Centre and the state governments in further developing public-private partnerships is also in the offing.