Premium| Listen to this article |
NEW DELHI: The Central Board of Direct Taxes (CBDT) has amended Income Tax rules to allow infrastructure debt funds (IDFs) to issue zero-coupon bonds.
The move offers greater flexibility for these investment vehicles to mobilise funds. IDFs can be sponsored by commercial banks and non-bank lenders in India in which domestic or offshore institutional investors, especially insurance and pension funds, can invest through units and bonds.
They act as vehicles for refinancing existing debt of infrastructure companies, which allows banks to exit a project and free up capital for financing fresh projects. Also, IDFs taking over banks' infrastructure lending is seen as a way of lowering infrastructure sector related risks that banks are exposed to.
IDFs can be set up either as a trust or as a company and are regulated either by the Securities and Exchange Board of India, or the Reserve Bank of India, depending on their nature as mutual fund or as non-bank lender.
The Income-tax (eighth Amendment) Rules, 2022, issued by CBDT show that IDFs can issue zero-coupon bonds. It also makes consequential amendments needed in related procedures including reporting requirement, showed the new rules notified on Wednesday.
Zero coupon bonds do not pay any interest to the subscriber but are issued at a discount to the face value of the bond. The subscriber receives the face value of the investment on its maturity.
The move to offer greater flexibility to IDFs in raising resources comes at a time the government is scaling up its own capital spending and encouraging more private and foreign investments into India’s infrastructure sector. The Modi administration is relying on the multiplier effect that infrastructure spending can have on economic growth and on job creation as an economic recovery strategy. It is also offering tax breaks to foreign pension and sovereign wealth funds to invest in the infrastructure sector.
Download the App to get 14 days of unlimited access to Mint Premium absolutely free!