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Tax-free bonds can have higher returns than bank rates

Tax-free bonds can provide returns that are higher than the prevailing interest rates offered…

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Sources said Boby Chemmanur group, like other gold firms, collected money as advance for buying ornaments. The group sells gold ornaments as per that scheme. But it has a deposit scheme offering unusually high rate of interest. Under that, Chemmanur allegedly collected Rs 454 crore (as on March, 2015) without any licence to do so.
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The Corporate Affairs Ministry has said that tax-free bonds providing more yield than prevailing bank rates would not violate provisions of the Companies Act.

Tax-free bonds can provide returns that are higher than the prevailing interest rates offered by banks.

The Corporate Affairs Ministry has said that tax-free bonds providing more yield than prevailing bank rates would not violate provisions of the Companies Act.

The ministry has provided clarity on the matter at a time when many entities, including the Railways, are looking to raise funds by way of issuing tax-free bonds.

“In cases where the effective yield (effective rate of return) on tax-free bonds is greater than the prevailing yield of one year, three-year, five-year or ten-year government security closest to the tenor of the loan, there is no violation of… Companies Act, 2013,” it said in a circular issued on Thursday.

Earlier this week, Finance Minister Arun Jaitley said the proposal to allow railways and highways to issue tax-free bonds has been cleared.

“I today cleared a proposal for both (highways and railways) these sectors to have a large investment by way of tax-free bonds,” he had said.

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