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Infrastructure financing agencies may get I-T sops

Hema Ramakrishnan

Shaji Vikraman

NEW DELHI, Dec. 14

THE Finance Ministry is considering a proposal to allow agencies financing infrastructure projects to float bonds and raise funds at a cheaper cost by providing tax breaks to investors subscribing to these bonds.

The Government now provides tax breaks under Section 10 (23 G) of the Income-Tax Act to investors subscribing to bonds issued by companies that are fully into developing, maintaining and operating infrastructure facilities such as power, telecom, ports, roads, highways, rail systems and townships.

Income earned by the investors in infrastructure capital funds in the form of dividends, interest and long-term capital gains on investments in shares or long-term finance of infrastructure providers is exempt from tax.

With some State-owned enterprises financing infrastructure projects pushing for similar tax benefits to investors picking up their bonds, the Government is considering widening the list of entities which can issue infrastructure bonds at a lower rate to investors.

If this is done, the prospects of financial institutions and banks also being eligible for such bond issuance appear bright, as they directly finance several infrastructure projects. They would then be able to raise funds through bond flotations at fine rates given their superior rating also. This, in turn, would help the promoters of infrastructure projects access funds at competitive rates.

The Finance Ministry has received representations from State-owned PSUs to include words `the business of financing', along with `developing, maintaining and operating an infrastructure facility', sources said. The proposal, if accepted, would require an amendment to the Income-Tax Act, which, in any case, would be done only in the Budget.

However, officials pointed out that the Ministry cannot consider the proposal for PSUs in isolation, given that there are others in the private sector too engaged in the business of financing an infrastructure facility.

An infrastructure facility also includes a water supply project, irrigation project, sanitation and sewerage system. The scope of infrastructure facility was widened to include transmission projects, besides generation or generation and distribution of e lectricity in the last year's Budget.

The Finance Ministry has, over the last three years, cleared close to 150 applications. Companies which are engaged in sectors such as road, highways, ports and industrial parks feature in the list.

Recent approvals have been for new companies which have been formed after the reorganisation of State electricity boards (SEBs) into separate generation, distribution and transmission units. Officials said that about 100 proposals are now pending for cle arance.