India Specifies Tax-Free Infrastructure Bond-Issuers

by Mary Swire, Tax-News.com, Hong Kong

13 July 2010

The Indian government has announced a list of bond-issuers whose bonds may be eligible for tax incentives to promote investment in India's infrastructure.

The bonds in question may be issued by:

• Industrial Finance Corporation of India;
• Life Insurance Corporation of India;
• Infrastructure Development Finance Company Limited; and
• A Non-Banking Finance Company classified as an infrastructure finance company by the Reserve Bank of India.

The bonds would be classified as “Long-term Infrastructure Bonds” for the purpose of section 80CCF of the Income Tax Act, 1961.

Investment in these bonds up to INR20,000 (USD426) will be eligible for deduction from the total income of the taxpayer. The deduction will be in addition to the deduction of INR100,000 allowed under sections 80C, 80CCC and 80CCD of the Act.

The tenor of the bonds must be a minimum of ten years with a lock-in period of five years for an investor. It will be mandatory for the subscriber to furnish a 'Permanent Account Number' (PAN) to the issuer for investment in the bonds.

For the fiscal year 2009-10, tax free bond issues will be limited to 25% of the incremental infrastructure investments of the respective infrastructure finance companies, according to a PTI report.

The Indian government anticipates USD6.5bn of bond issues in the fiscal year 2010/11 to finance roads, ports and power plant construction.

India is aiming for USD500bn investment in infrastructure projects in its 11th Plan period ending March 2012, and wants this to more than double in its 12th Plan.

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