Budget 2013: Tax Free Bonds
One of the reasons for the muted collection of these bonds is their long-term nature.
In an attempt to boost the infrastructure sector, the finance minister has proposed to extend tax-free bonds for this year as well up to 50,000 crore. Tax-free bonds are secured, redeemable, non-convertible debentures issued by government entities to individuals and institutional investors to mobilize funds needed for projects in the infrastructure development sector. So far this year, organizations including Indian Railway Finance Co. Ltd, Power Finance Co. Ltd, Rural Electrification Corp. Ltd, Housing and Urban Development Co. Ltd and Indian Infrastructure Finance Co. Ltd have raised at least one tranche of funds via such bonds. These are long-term in nature with maturity periods ranging from 10 to 20 years. The coupon rates are linked to the prevailing 10-year government security yield. The interest earned by investing in these bonds is tax free and at present the range of coupon is around 7-7.6% per annum.