Cash starved core projects may soon get a breath of new life with the finance ministry set to issue fresh guidelines for tax-free infrastructure bonds that were announced in the Budget. But government officials indicated that under the new guidelines,the bonds may offer lower interest rates and also lesser commission. Further,only state-run firms will be allowed to raise such money from the market.
The move comes after a meeting last week of finance ministry officials with representatives of public sector firms that plan to float such tax free bonds. We have asked them to come to us with individual proposals for floating such paper. It should hopefully be done by next month so that they can start issuing bonds in the first half of the fiscal, a finance ministry official said,adding that the Central Board of Direct Taxes (CBDT) will soon notify the tax-free status of these bonds.
Under the fresh guidelines,the returns on the bonds are likely to be in the range of 8 to 9 per cent,the official said. Till 2011-12,these bonds offered interest rates of up to 11-12 per cent as the returns on them could not be lower than 50 basis points of government securities of the same maturity.
Finance minister Pranab Mukherjee in the Budget for 2012-13 allowed firms to raise up to Rs 60,000 crore through tax free bonds for financing core sector projects. The facility was also provided to firms in 2010-11 and 2011-12 when they were permitted to raise Rs 20,000 crore and Rs 30,000 crore respectively,but at that time taxpayers investing in such bonds were given a deduction of Rs 20,000 per year.
But the finance ministry believes that the tax free nature of these bonds along with the high interest rates were largely attracting high net worth individuals and not individual tax payers who were supposed to be the main beneficiaries. The issue was first raised by the Planning Commission which noticed irregularities on the commission and brokerages being paid for such bond issues.
In 2012-13,seven public sector firms are expected to issue such paper. This includes Rs 10,000 crore bonds each by NHAI,IRFC,IIFCL,and power projects and Rs 5,000 crore bonds each by HUDCO,National Housing Bank,SIDBI and port developers.