Finance minister Yashwant Sinha announced the provision for floatation of tax-free bonds under Section 10(23G) of the I-T Act in his budget speech in June.

CBDT has stressed that corporates wanting to raise funds through infrastructure bonds under Section 10 (23 G) of the I-T Act will have to submit balance sheets and profit and loss accounts for the three previous years preceding the year in which application has been made by them.

To avail of the tax benefits, the organisation will have to furnish details like assessment particulars and details of investments. However, the centre will have the power to grant approval or refuse it based on information submitted by corporates. The approval will be valid for a period not exceeding threeassessment years.

As per the new guidelines, CBDT has stressed that central government will approve an enterprise for tax exemption only if the enterprise is engaged in the business of developing, maintaining and operating infrastructure facility.

Corporates will be required to submit a copy of project report or agreement for the infrastructure facility approved by the central government or state government.

The corporates will also have to produce a copy of certificate of incorporation under the Companies Act 1956 or document showing the constitution of the enterprise and its legal status.

The central government has also been given powers to call for any document from firms including audit annual accounts and other information in order to satisfy itself that such enterprise is engaged in infrastructural activities.

The central government will withdraw the approval granted under Section (5) to an enterprise if it ceases to carry on infrastructure facility or fails to maintain proper audited booksof accounts or fails to furnish the audit report, the CBDT notification said.

According to fund managers, CBDT has not clarified whether tax exemption will be on the gross borrowing or the net borrowing. "We are taking the view that tax exemption is on the gross borrowing and not the net amount after excluding the costs of raising funds," said a fund manager.

Fund managers are of the view that the clarification on Section 10 (23 G) will encourage corporates to come out a spate of infrastructure bonds. Till now, only Reliance Telecom and Maharashtra State Electricity Board have issued infrastructure bond under section 10 (23 G).

CBDT in exercise of powers conferred by Section 295 of the I-T Act has inserted a new Section 2E which deals with guideline under which corporates will be allowed to raise tax free infrastructure bonds under Section 10 (23 G).