Budget 2020: Infrastructure is the backbone of a nation's development and good infrastructure is as important to the ease of doing business as it is to the quality of life for its citizens.
In her 2019 Budget speech, finance minister Nirmala Sitharaman had listed the development of physical and social infrastructure as the first and foremost actions in the 'The Vision for the next decade'.
She had also acknowledged that in order to attain the aspiration of becoming a $5 trillion economy, India needs to continue to invest heavily in infrastructure.
The finance minister indicated that India requires investments estimated at Rs 20 lakh crores every year ($300 billion a year). Towards this end, she proposed many measures including an action plan to deepen the market for long term bonds including for corporate bond repos, credit default swaps etc., with a specific focus on the infrastructure sector.
Long-term infrastructure bonds issued by public sector undertakings (PSUs) or other infrastructure finance companies can be used as important sources of funds for investments in specified infrastructure projects.
Tax incentives could also be provided under the law to incentivise individual taxpayers to invest in these bonds. The issuing companies act as intermediaries, borrowing from investors and lending, or investing in such long gestation infrastructure projects.
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Tax deduction for infrastructure bonds
For example, section 80CCF was introduced in the Finance Act, 2010, wherein a deduction was made available to resident individuals for investment in notified long-term infrastructure bonds.
The then FM had introduced this with the stated intention of "promoting savings as well as to ensure their utilisation for the thrust area of infrastructure". The deduction limit was up to Rs 20,000 per year and importantly, this benefit was over and above the deduction claimed up to Rs 150,000 under Section 80C.
Although this deduction ensured that taxpayers contributed towards infrastructure funding and also mitigated their tax liability, the deduction was discontinued with effect from the tax year 2012-13.
There is a strong case for a tax deduction on similar lines to be reintroduced in the Budget 2020.
Exemption from Long-term capital gain tax
Another popular provision related to bonds is Section 54EC of the Act, which provides a tax exemption in respect of long-term capital gains so long as it is invested in specified bonds (up to a maximum of 50 lacs) within six months from sale; these are bonds issued by the National Highways Authority of India (NHAI), the Rural Electrification Corporation Limited (REC) or any other bond notified by the central government.
The scope of this exemption has been restricted only to long-term capital gains from the sale of land and/or building and the minimum holding period of the bonds after which they can be redeemed, has been increased to 5 years (from the erstwhile period of 3 years) by the 2018 Budget.
As this can be a significant source of funding for the infrastructure sector, the government could consider expanding the list of eligible bonds into which such investments can be made. For example, as per the NHAI annual report of FY2017-18, NHAI had raised Rs 6,657 crores from these bonds.
While there is anticipation for big bang moves for the infrastructure sector in Budget 2020, one will have to wait and watch until the Budget proposals are actually announced on February 1.
(Alok Agrawal is Partner with Deloitte India, Vikas Birla is Manager and Hetasvi Shah is Assistant Manager with Deloitte Haskins and Sells LLP)