Officials told ET the finance ministry's department of economic affairs, as part of its suggestions for the 2012-13 budget, had proposed raising the investment limit in these bonds to Rs 50,000 from Rs 20,000 now. The revenue department is expected to take a final decision after weighing expected economic gains against short-term revenue losses.
"The idea is to see if this can be expanded further. The tax-free bonds are a good option not just for investors, but also for issuers to raise funds," said a ministry official, who asked not to be identified.
After a gap of five years, the 2010-11 budget reintroduced tax breaks on infrastructure bonds, allowing investments of up to Rs 20,000 in these instruments to be deducted from taxable income and effectively helping individuals save Rs 6,180 in taxes.
Initially announced for one year, this concession was extended for another year last year. Now the economic affairs department wants to continue the tax rebate into the next fiscal with a higher limit and a larger number of eligible issuers.
Banks have been lobbying with the finance ministry to allow them to use these bonds to raise long-term funds for lending to the infrastructure sector.
Experts said the proposals being considered made sense.
"There is merit in the proposal as higher tax benefit will allow issuers to raise better amounts," said Vikram Limaye, executive director at IDFC.
Added Feedback Ventures Chairman Vinayak Chatterjee: "The idea is to channelise household and general savings into infrastructure, which has not happened very effectively so far. If a tax break can help, it makes sense."
In 2010-11, IDFC, REC, IIFCL and a few other companies together raised more than Rs 3,000 crore. In the current year, these infrastructure companies have already sought permission to raise about Rs 13,500 crore.
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