The government may look at providing tax exemptions on interests or dividend earned on infrastructure bonds issued by commercial banks. Earlier, under Section 10(23G) of the Income Tax Act, interest earned on infrastructure bonds issued by commercial banks was exempted from tax.
However in 2006-07, the benefit was withdrawn. ?The benefit may once again be provided to investors to boost funding for the infrastructure sector,? an insider said.
The issue is set to be taken up in a pre-Budget meeting between finance minister P Chidambaram and bankers.
A government official said infrastructure is key to sustain a growth rate of about 9%. ?The focus would be on providing a fillip to the sector,? the official added. The infrastructure sector requires about $320 billion over the next five years.
Though commercial banks have a large exposure to the infrastructure sector, they are not very keen on further expansion as they fear that there could be an asset-liability mismatch. They prefer to focus on mobilising short-term deposits. Infrastructure financing is typically long term.
?By allowing tax exemptions on interest earned on infrastructure bonds issued by commercial banks, the government would in turn not only encourage investors to go in for these bonds but also make it lucrative for banks to focus on long term funding,? the official said.