Infrastructure Debt Funds to accelerate the growth of infrastructure sector

The better rating of Infra companies through credit enhancement will ensure participation of insurance funds and pension funds in providing cost-effective infra funding. The balance sheet of banks loaded with long term infra loans will be off-loaded with the help of take-out finance

The Finance Bill, 2013, has several amendments with respect to investment in the infrastructure sector. Going with the past trend and stressing upon the importance of the infrastructure development, finance minister, P Chidambaram while presenting the Budget for 2013-14, has focused on the need for infrastructure development. To quote him: “While every sector can absorb new investment, it is the infrastructure sector that needs large volumes of investment. The 12th Plan projects an investment of $1 trillion or Rs55,00,000 crore in infrastructure. The Plan envisages that the private sector will share 47% of the investment. Besides, we need new and innovative instruments to mobilise funds for this order of investment.”

Though the figure of $1 trillion was based on the 9% growth target when the 12th Plan was announced, and today, for the current year, the growth estimated is 5.5%. So, the investment target has to be changed. The Planning Commission itself is of opinion that India will not be able to achieve $1 trillion target for investment in the infrastructure sector during the 12th Plan (2012-17) in view of lower economic growth prospects.

Still, there is a vast gap and to meet the targets, there is a strong need to infuse investment in the infra sector.

With such a high investment target, there is a need to attract huge investment in the infrastructure sector and in harmony with the want of promoting investment in the infrastructure sector, the finance minister has taken steps to encourage new and innovative instruments like Infrastructure Debt Funds (IDFs) for infra funding.

Need for IDFs:


  • Infrastructure projects have a long gestation period for which they require sustainable and low cost long-term financing. The lenders, which are mostly banks as insurance and pension funds, do not have the risk appetite for such kind of investment. Further, the fact that the pay-back period for infra projects are too long, banks suffers asset-liability mismatch because of long-term infra funding.


  • So, there is a dearth of long-term funds for infra sectors, because of which the cost of projects increases significantly.


  • The government had set up the India Infrastructure Finance Company (IIFCL) with the objective of providing long-term debt for infrastructure projects. However, its lending was restricted to about 30% of the project debt, thus the balance 70% were left to be raised mainly from the commercial banks.


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Budget 2011-12 laid down the foundation of IDFs:


In the budget for the year 2011-12, the setting up of IDFs was announced to facilitate the flow of long-term debt into infrastructure projects.


  • Further, in order to attract foreign funds for financing of infrastructure, the finance minister announced creation of special vehicles in the form of notified IDFs. The interest payments on the borrowings of these funds were subject to a reduced withholding tax rate of 5% instead of rate of 20%.


  • The income of the IDF was made exempt from tax u/s 10 (47) of the Income Tax Act (IT Act).


  • These initiatives were aimed mainly to lure the investors to invest in infrastructure projects.

    Existing IDFs in India:
  • Presently, there are four IDFs registered with the Securities and Exchange Board of India (SEBI) viz. ICICI Prudential Infrastructure Debt Fund, Birla Sunlife Infrastructure Debt Fund, IDBI Infrastructure Debt Fund & IDFC Infrastructure Debt Fund. Further, IL&FS Infrastructure Debt Fund & India Infra Debt (the first Infrastructure Debt Fund under the NBFC Structure) was launched in February 2013.

    What’s in store for IDFs in the Budget 2013-14?
  • India Infrastructure Finance Corporation (IIFCL), in partnership with the Asian Development Bank (ADB), will offer credit enhancement to infrastructure companies that wish to access the bond market to tap long-term funds. This credit enhancement will help Infra companies to enhance their rating to AA level and thus making it an eligible instrument for investment by institutions like insurance companies and pension funds.


  • During the last financial year, ten infrastructure or infrastructure finance companies, including IIFCL, National Highways Authority of India (NHAI), Housing and Urban Development Corp (Hudco), Power Finance Corporation (PFC) and IRFC, were allowed to issue tax-free bonds. They raised around Rs30,000 crore in 2011-12 and are expected to raise about Rs25,000 crore in 2012-13. In the recent budget, the finance minister has decided to allow some institutions to issue tax-free bonds in 2013-14 up to a total sum of Rs50,000 crore.


  • Tax-free infrastructure bonds were proposed by the government to channelize retail and institutional savings into the country’s infra sector through long-term bonds. To make these bonds attractive and widen the investor base, the government has allowed full tax exemptions to interest income from these bonds.

    Infrastructure bonds: Now being eligible for investment by charitable/religious trusts

    Tax amendments for IDFs in the Budget 2013-14:
  • The Finance Bill seeks to amend Section 115R of the I-T Act, with effect from 1 June 2013 relating to tax on distributed income to unit holders. A proviso has been inserted after clause (iii) of sub-section (2) of Section 115R to the effect that any income distributed by a mutual fund under an infrastructure debt scheme to a non-resident (other than a company) or a foreign company shall be liable for payment of additional income-tax at the rate of 5% on the income distributed.


  • Further, the expression “infrastructure debt fund scheme” has been defined by inserting an explanation under Section 115R of the Income tax Act, to the following effect:-

    “ii) ‘infrastructure debt fund scheme’ shall have the same meaning as assigned to it in clause (1) of regulation 49L of the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 made under the Securities and Exchange Board of India Act, 1992.”


  • The Finance Bill further amends Section 194LC of the I-T Act with effect from 1 June 2013. As per Section 194LC, a withholding tax of only 5% is required to be deducted by the Specified Indian Company while paying interest on infrastructure bonds or for paying interest on ECBs (external commercial borrowings). One of the requirements under this Section is that the borrowing should be in foreign currency.

    Sub-section (2) of the said Section is amended to provide that where a non-resident or a foreign company has deposited any sum of money in foreign currency in a designated account and such sum (as converted in rupees), is utilized to subscribe to any long-term infrastructure bonds issued by the specified company in India, then, such borrowing for the purposes of Section 194LC shall be deemed to have been made by the specified company in foreign currency.

    Further, the expression “designated account” has been defined by inserting an explanation as clause (a) to the sub-section (2) of Section 194LC, to the following effect:-

    “(a) “designated account” means an account of a person in a bank which has been opened solely for the purpose of deposit of money in foreign currency and utilisation of such money for payment to the specified company for subscription in the long-term infrastructure bonds issued by it.”



The income of an IDF is exempted u/s 10 (47) of the I-T Act. There is a lower withholding tax of 5% on income by way of interest received from IDFs by foreign investors u/s 194LB of the I-T Act. Also, the same withholding tax of 5% is applicable on interest income from infra bonds issued by Indian companies to foreign investors. Further, if the credit enhancement is provided by institutions like IIFCL in collaboration with ADB, we do not see a reason why the infra bond market will not accelerate. The better rating of Infra companies through credit enhancement will also ensure participation of insurance funds and pension funds in providing cost-effective infra funding. The balance sheet of banks loaded with long term infra loans will be off-loaded with the help of take-out finance.


FM gets tough with tax evaders, rules out amnesty

Chidambaram pointed out that no tax burden had been imposed in the Budget on any category of people, other than a “small burden” of a 10% surcharge on the relatively affluent 42,800 people with incomes of over Rs1 crore a year

In a warning to tax evaders, finance minister P Chidambaram said a huge amount of data has been mined to go after them and ruled out any amnesty scheme.


“No. In income-tax, there is no case for amnesty. Because now almost all returns are online except a small category which was exempt. We have a huge amount of data being mined. Therefore, there is no case for amnesty today,” he said on Sunday.


“Best case I can make out is to tell people, ‘please don’t hide your income’ Just admit your income and pay tax and be a proud citizen,” he said.


Chidambaram pointed out that no tax burden had been imposed in the Budget on any category of people, other than a “small burden” of a 10% surcharge on the relatively affluent 42,800 people with incomes of over Rs1 crore a year.


That number was deliberately used to ‘shock’ the nation that there are only 42,800 people who admit an income of over Rs1 crore, he said.


Voicing the hope that “other measures” proposed to be taken and the ‘shock’ of the number would persuade more people to declare their true income, Chidambaram said that, based on data mining, notices have been issued to 35,000 people, to be followed by more.


“We have the central process cell in Bangalore that processes all income-tax returns using the most advanced software. So, if the information we have from other sources is not matched with the information from I-T returns, that will be thrown up,” he said.


To a question, Chidambaram said there are no estimates on the amount of black income and the number who should be in the net but who are not. But, he said, in a country with 125 crore people, excluding 67% of the people under food security risk and elderly people and children, there would be 15 crore people with incomes in various segments.


“The top 10% should have large income... I think the number must be several times 42,800 who have high income,” he said, adding they may not be earning Rs1 crore but certainly Rs75 lakh or Rs50 lakh.




4 years ago

“Best case I can make out is to tell people, ‘please don’t hide your income’ Just admit your income and pay tax and be a proud citizen,” the FM said.

I am feeling proud citizen since the VDIS is introduced in 1992, but no incentive or appreciation from the Govt., who honoured the VDIS assessees, which is unethical.

“No. In income-tax, there is no case for amnesty. Because now almost all returns are online except a small category which was exempt. We have a huge amount of data being mined. Therefore, there is no case for amnesty today,” he added.

If it is true, we all, so called proud citizens will forget the pains, experienced so far, by making up our minds that we have sacrificed for the exchequer of the nation.


Life Exclusive
Moneylife Foundation seminar simplifies Union Budget 2013-14

Just three days after it was presented by finance minister P Chidambaram, Anil Harish and Vimal Punmiya delivered their engaging analyses on the budget. Several important points, gone unnoticed by media thus far, were discussed in detail by the speakers. Particular attention was paid to amendments related to real estate. Read on to find out what impact this budget will have on your life

At the 155th seminar of Moneylife Foundation, Anil Harish, a lawyer who specialises in matters related to real estate, informed a packed audience at the Bombay Royal Yacht Club, in south Mumbai, that India is one of the most difficult places to do business in. “India used to the 120th most difficult country to do business in, out of 155, 20 years ago. Today, we are 132nd. Builders may be doing a lot illegally, but they are right to complain about how hard it is for them to get permits,” said Mr Harish, a partner at DM Harish & Co.

Mr Harish believes that the government has not done much to improve processes and reduce corruption in the system. Instead, he said that several amendments to the Income Tax Act this year are unclear and could easily be misinterpreted. He said, “The finance minister said he was encouraging micro and small industries, but proceeded to give an investment allowance of 15% to those entities that invest over Rs100 crore in the “manufacture of any article or thing” in the next two years. It appears that a particular company or firm desired this allowance and managed to persuade the government. What makes this provision unclear is that even builders can claim to have manufactured an article or thing in constructing a building. They could have excluded real estate, but they haven’t. So a builder could fight for this investment allowance. This is sure to result in much litigation.”

Another ambiguous provision relates to the additional deduction of Rs1 lakh on home loans sanctioned in the current year. Mr Harish said, “The finance minister said that this will promote home ownership in a significant way. But I don’t believe this will be the case. Mainly this is because the benefit is not so substantial. The loan must be sanctioned in FY13-14, the loan must be of less than Rs25 lakh, the flat value must be no more than Rs40 lakh. Remember that it says ‘value’. So the I-T department may not care about what you’ve paid for the flat. The department will go by the stamp duty valuation. There’s sure to be much controversy over this matter. Also, the finance minister said this is available to ‘first-home’ buyers, but this is nowhere written in the Bill. This again will lead to a controversy.”

One of the most draconian provisions announced, in Mr Harish’s opinion, was related to the amendment to Section 43CA. He said, “This will affect many people. This is because it requires both the seller and buyer to pay tax according to the Ready Reckoner value if the sale price is less than what the Ready Reckoner values at. This will surely cause problems. This is a very unfair law. We’re going back to the old days, it appears—when business was conducted either under the table or out of the country.”

Lastly, Mr Harish noted the areas the finance minister completely ignored. He said, “What did need attention was black money, corruption, scams, foreign accounts, exchange rate and employment opportunities. This was simply not addressed. But we must be thankful no estate duty was proposed.”

Vimal Punmiya, partner at Vimal Punmiya & Co, then proceeded to discuss matters not related to real estate. He began, though, by discussing his view of the Budget in general. “Nothing much has been done,” he said, “I was expecting the finance minister to propose a few taxes, but he didn’t. Mr Chidambaram usually does this. He will introduce several taxes. This time it was only one, the relatively minor commodities transaction tax. Largely, this is just an election budget. Either incentives were given or charges were announced. There was lots of talk about it, but not much has been given to either women or children.”

The need for reform has received much attention in the past few months. Mr Punmiya said, “Mr Chidambaram has announced a reform committee. I personally feel that this committee has the potential to do much good in the area of taxation. It can substantially reduce litigation.”

Mr Punmiya then informed the audience of the various benefits they are entitled to this year. He said, “You can claim a deduction of Rs2,000 if your salary is less than Rs5 lakh. Then, you can also now receive a deduction of 100% of the amount you donate to National Children’s Fund under Section 80G of the Income Tax Act. Usually, you get a deduction of just 50% of the amount you invest, as with the Prime Minister’s Office Fund.”

Like Mr Harish, even Mr Punmiya was glad that the estate duty wasn’t introduced. He said, “The finance minister had talked about bringing the estate duty back. This would have been devastating. At one point during the speech, I thought the estate duty was being brought back. But it wasn’t and for this I’m pleased. This would have taken us back to the 1980s.”

The seminar ended with an engaging Q&A session that lasted over half an hour.




4 years ago

Good knowledge is gained from such meetings. Keep it up and publish the important points brought out at such seminars.


Vinay Joshi

In Reply to hasmukh 4 years ago


What knowledge you gained from the meeting vis-à-vis my straight comments? to the Hon’ Speaker[s]. Had so? you should have answered my comments!?

This can be to comprehend; I’m putting it up for the forum & Moneylife.
[it is essential to read my post – 3days ago.]

The no frills budget analysis HAS NEVER EVER been, only Nani Palkhivala. There use to be a serpentine queue for general public from gate east, CCI.

His erudition was ‘TRUST’, who ratified the merits or otherwise [unlike present day speakers!]

It was more important than what FM has said, rather FM’s WAITED for his analysis!?

Mr. Nanabhoy [aka Nani] Palkhivala had started the tradition in 1958 at Greens Hotel, continued it for more than three decades.

It has given him an iconic status which, NEITHER the media or anyone can come closer.

He stopped in 90’s, ‘CACOPHONY’!? No point, his good sense, silence is golden.

I had asked for a reply from the Hon. Speaker [dispensation / comments at the said seminar], Mr. Anil Harish, Advocate, / Partner, D.M Harish & Co, a sixty year old reputed Law firm. He was there at ‘Legal Pundits’ conference in 2012. Yet not forthcoming.

Has he answered it? or Moneylife has not forwarded it to him? TO WHOM WAS IT INTENDED. NOW, I’m expanding it. Expecting answers, if any, without prejudice.

1] India ranks 132, who proliferates it?

2] If he wants construction industry to avail 100CR rebate, as per his admission will the industry be prepared to pay C.Ex Duty, Service Tax, VAT, SHOW SUCH INVESTMENTS!

Why can’t you state the ‘X’ Co. beneficiary?

DID HE EVEN ONCE REFER TO SIDBI? Other aspects I’m leaving it aside on MSME. WHAT does he know & stated?

4] On ‘Home Loan’ was he addressing ‘SOBO’ people or the ‘COMMON MAN’?
He is CALLING it ‘AMBIGUOS’ a provision, SILENT to state ambiguity!

5] Mr. Anil, when you plead & IT /Courts ask – READ – disputed value of immovable property – WHAT DO YOU PLEAD? WHAT IS STAMP DUTY VALUATION? IT IS BASED ON WHAT? HOW ‘IT’ [dept] TAKES CONCURRENCE?

WHY, have you not stated that a working couple can avail the benefit on 80L home loan?

6] Mr. Anil had dealt with sub-sec 3[iii] BUT IGNORANT of 3[iv] which states – ‘the assesses does not own any residential house property on the date of sanction of the loan’.


7] This doesn’t stop here – he further goes to state 43CA, seeked to be inserted draconian!?

What is ‘DRACONIAN’? He overlooks proposed sub sec [2][4][3], existing 50C[2][3][1].

8] No where its proposed that ‘Seller’ will have to bear “ANY” Tax for undervaluation.
How are sale deeds assessed?

9] He has ‘gaffed’ sec 56[2][vii][b] proposed [b] ‘property consideration’.

10] He “CALLS” 43CA draconian, not understood in which manner? But he wants to
‘justify’ his talk on ‘BLACK MONEY’, “CORRUPTION”, “FOREIGN ACCOUNTS”!

Such ‘self centered’ talks with the intention of ‘scare mongering’ is unsolicited for.

Well, it was ‘Moneylife’ perception to get to ‘decipher’ THE FINANCE BILL 2013.



4 years ago

TDS ON SALE OF IMMOVABLE PROPERTY SEEMS TO BE SIMILAR THAT OF BCTT (banking cash transaction tax) in the past, which was a failure one and subsequently withdrawn.


Vinay Joshi

In Reply to S BHASKARA NARAYANA 4 years ago

Mr.S. Bhaskara Narayana,

BCTT was not failure, a basic mopping up exercise, BANKS were not having electronic / computerized facilities in 2005 to feed data.It garnered a few thousand crores.

STT, same principle working fine, now, even with 60% - 80% reductions in equity & futures resp.

1% TDS aspect & recknoer value is to get/net wide base, economic principle.



Vinay Joshi

4 years ago

Hello Ms.Sucheta,

In the first place your byline Budget analysis is missing. If not you, Mr.Debashis should have!

Please forward this message to Mr.Anil for his valued replies solicited by me.
Ms.Soma is yet contemplating her reply, is different.

Getting the respected & honourable Gentlemen to deliver their Budget speech is TOTALLY & ABSOLUTELY DIFFERENT than what Mr.Nani Palkhivala use to deliver at Brabourne! OK.

Anyway I’m proceeding further,

Dear Mr. Anil Harish, Greetings!

Yes doing business in India rank 132, what are its component indicators, the proliferators!
How many shady things the multi-crore operators have which are in conjunction quashed?

Who pleads & manages on their behalf? The pleaders themselves know violation!?

Mr. Anil, a distinguished a person like you ‘MIXING’ like cement 100CR accelerated investment allowance! Oh! At the same, commenting, done for “ONE” co.!?

WHAT IS YOUR VISION FOR INVESTMENT & GROWTH? Ok, given for one co. [you’ll not name it] BUT it applies across the board? HAVE YOU FOLLOWED THE PROVISION?

A Harvard educated, Tam Chettiar, HAS STAKED his reputation TO WALK THE TALK!
The pragmatic & realistic budget in a complex situation, he should be congratulated.

OK, you want 100Cr investment rebate in construction, ACCORDING TO YOU, goods are manufactured / produced – ‘THEN BE PREPARED TO PAY EXCISE DUTY, SERVICE TAX & VAT’!

Further Mr.Anil, IF YOU HAVE NOT FOLLOWED, 100CR acceleration is in “PLANT & MACHINERY”, FOR enhancing the existing capacity, HENCE, ADDITIONAL INVESTMENT IN THE EXISTING MANUFACTURING FACILITY. [Brownfield project.]

Mr. Anil, tell me which developers have own equipments & THEMSELVES will INVEST further 100CR, FOR THE ONGOING PROJECT? AFTER 16/17 they will have to maintain the same ‘plant & machinery’ at the said project & CONTINUE TO MAINTAIN it for five years.

[clause 5 of The Bill, 32 IT Act [new sec] 1[a][b], sub sec2,]


Mr. Anil, on ‘Home Loan’ The Finance Bill 2013, EXPLICITLY STATES the provisions.

Clause 13 of the Bill seeks to insert a new section 80EE in IT Act, relating to deduction in respect of loan taken for residential house property.

Surprisingly Mr.Anil, you can delve on sub-sec 3[iii] BUT IGNORANT of 3[iv] which states – the assessee does not own any residential house property on the date of sanction of the loan.

Yes Mr.Anil, please answer, IS IT NOT STATED? OK, further why are you creating fear about 40L value & stamp duty valuation. Ready reckoner value is adopted value, WHAT’s the fuss about?

First & foremost – in which manner this transaction can come for scrutiny? Explain.

Mr.Anil, you’re wrongly interpreting & STATING DRACONIAN 43CA. Clause 8 of the Bill seeks to insert the new section, please go through proposed sub-secs [1][2][3][4], existing sec 50C [2][3]. NOTHING IS DRACONIAN!!? OK.

Mr.Anil, IF YOU CALL proposed sec 43CA DRACONIAN, I don’t think you are justified on talking about black money. What he wants to do on foreign accounts WAS EVIDENT on the day of Budget, on exchange rate HE CAN’t print $’s, hence seeking FDI/FII investments, & re: employment opportunities he has initiated steps in right direction. Read the text.


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