Investment limit on infrastructure bonds may rise to Rs 50,000

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The government is considering more than doubling the investment limit in infrastructure bonds eligible for tax rebates as part of a strategy to provide a funding boost to a vital sector while having a beneficial effect across the economy.

Current Limit - Rs 20,000 - Tax benefit Rs 6180 for those who comes under 30% tax slab.

Proposed Limit - Rs 50,000 - Tax benefit Rs 15,540 for those who comes under in 30% tax slab

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.