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NEW DELHI : The Central Board of Direct Taxes (CBDT) has amended the Income Tax rules to allow infrastructure debt funds (IDFs) to issue zero coupon bonds.
The move offers greater flexibility to these investment vehicles to mobilise funds. IDFs are bodies which 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 the infrastructure lending made by banks is seen as a way of lowering the 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 Sebi or RBI, depending on whether they are a mutual fund or 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 the 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 on 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 is 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.
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