Introduced in the last year’s Budget, the tax-exempt bonds may be discontinued this year as they have scarcely served the purpose of promoting long term investment in infrastructure sector.
Although there is still time for a final decision on this, officials in the finance ministry say that these bonds are causing loss of revenue to the tax department.
Statistics over a period of time has shown that the money brought in by these bonds are not going into creation or development of infrastructure sector, instead, benefiting some high-bracket individuals and companies.
It (tax-free bonds) has not attracted much revenue to the exchequer in the last one year. Instead there is loss of revenue to the tax department,” a tax department official said.
He, however, said that if benefits were not given to people, they will not invest in bonds at all. In the last budget, the government had discontinued tax-saving bonds largely because they did not bring desired results.
Analysts say the market for tax-exempt bonds is inefficient apparently because most of these are held by high net worth individuals. There is a need to make these bonds attractive to taxpayers in lower brackets.
In last Budget, the government had allowed 10 state-run companies to raise Rs 60,000 crore by issuing tax-free bonds, against Rs 30,000 crore the previous year. The interest earned on such bonds by an investor is exempt from income tax.
Despite that much of these have failed to attract investors, according to data of Power Finance Corporation, Indian Railway Finance Corporation and National Highway Authority of India.
Analysts say, lower interest rates on tax-free bonds may have discouraged the retail investors from investing in them.
Retail individual investors, qualified institutional buyers, corporate and high net worth individuals are eligible to subscribe to tax-free bonds with tenures of 10-15 years.