Will infra bonds gain in Budget 2012?

Some experts have urged Finance Minister Pranab Mukherjee to announce tax breaks to encourage investments in infrastructure in the Union Budget, which is set to be presented in Parliament on 16 March.

Currently, up to Rs 20,000 invested in certain types of infrastructure bonds are exempt from income tax, under Section 80 CCF of the Income-Tax Act. Analysts expect this limit to be raised, to anywhere between Rs 40,000 and Rs 100,000 , according to _The Wall Street Journal._The interest earned on such bonds is free from income tax.

That would help the government to generate more funds for much-needed infrastructure projects.In addition, the government may allow “banks to raise funds through tax-free bonds for infrastructure funding,” the newspaper said, quoting a note from Edelweiss Research.

Indeed, earlier this month, the CEO of Yes Bank urged the Finance Minister to permit banks to mobilise infrastructure bond funds, a report in Business Line said.

“Infra bonds will help galvanise very important sources of medium to long-term savings to contribute towards infrastructure development in the country. Banks can get a lot more retail participation as we have an established retail distribution outreach relative to non-banking financial companies,” said Rana Kapoor.

Another report in The Economic Times urged the finance ministry to consider allowing non-resident Indians to invest in such bonds . Currently, NRIs cannot invest in infra bonds.