MoF consults Sebi,RBI for shaping infra debt fund

The government today kick-started discussions on the proposed Infrastructure Debt Fund (IDF),holding meetings with banking and market regulators to discuss the broad contours of the proposed fund.

Sources told The Indian Express that the proposed fund would become a part of the Direct Taxes Code,which is currently being vetted by the Parliamentary Standing Committee on Finance and would be implemented from April 1,2012. A source said the officials of the Reserve Bank of India,and market regulator,Sebi,met finance ministry officials to discuss the structure and the regulator of the fund.

The terms of borrowing,minimum corpus requirement,among other things,would be worked out soon. The official added that the income of the fund would be exempt from tax because the intent of the fund is not to generate income but to mobilise the same in infrastructure. However,it will have to file return.

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While presenting the Budget,finance minister Pranab Mukherjee announced the creation of special vehicles in form of notified infrastructure debt funds to attract foreign funds for financing infrastructure. The amendments would be effective June 1,2011.

The official said that several investors interested in making investment in infrastructure were deterred by a high tax rate of 20 per cent charged currently.

The effective payable rate,the official added,was around 26 per cent,acting as a big hindrance in finance mobilisation for long-term projects. As per the budget proposal,any interest received by a non-resident from such fund will be taxed at 5 per cent. The interest paid by the debt fund would also be taxed at a five per cent rate.

This is expected to generate enough interest in foreign investors who want to invest in long-term debt, the official added. For the purpose,the government will amend section 10 of the Income Tax Act to provide enabling power to the Centre for notifying such a fund.

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The government has earmarked $1 trillion for infrastructure spending in the 12th plan period,for achieving 10 per cent growth target. The government is betting on private players to pump in funds for financing the countrys infrastructure need.

The government has also extended additional deduction of Rs 20,000 crore for investment in long-term infrastructure bonds. This is expected to promote savings while raising funds for infrastructure. In the current fiscal,the scheme has mobilised around Rs 10,000 crore and is expected to bring in more revenues as the financial year ends.