Good infrastructure plays a key role in a country’s growth, economic development, and prosperity. Developing infrastructure involves high-cost, i.e., a lot of investment which can be financed through various avenues, with infrastructure bonds being one of them.

Last month, the finance minister while releasing the report of the Task Force on National Infrastructure Pipeline for 2019-2025, had mentioned that for India to achieve the GDP of $5 trillion by 2024-25, it needs to spend about $1.4 trillion (Rs 100 lakh crore) over these years on infrastructure.

History of infrastructure bond
If we look into the past, Finance Act, 2010 had introduced section 80CCF in the Income-tax Act, 1961 (the Act) with effect from April 1, 2011. As per this section deduction from income would be available to individuals for investing in notified long-term infrastructure bonds up to a sum of Rs 20,000. This deduction under section 80CCF of the Act was over and above the aggregate limit of deduction allowed under sections 80C, 80CC, and 80CCD of the Act.

The deduction for investment in infrastructure bonds was available only for one year and discontinued with effect from tax year 2012-13. However, investment in infrastructure bonds under the section was subject to a minimum lock in of five years to avail the deduction.

Investment in infrastructure bonds under section 80CCF of the Income Tax Act provided a tax break and a savings avenue to individual taxpayers as well as served as a way to bridge the funding gap in the infrastructure sector.

Why it is time to re-introduce infrastructure bond
In the backdrop of the same, it is an opportune time for the Finance Minister to re-consider and bring back the deduction for investment in infrastructure bonds under the overall ceiling of section 80C of the Act, if not re-introducing the deduction for investment in infrastructure bonds as a separate section of the Act.

Considering that infrastructure is the lifeline of an economy, India still needs huge investments in the sector. Re-introduction of the deduction towards investment in infrastructure bonds will serve twin objectives of the government – on one hand it will help raise funds for various infrastructure projects and on the other, it will lead to increase in investments by individual taxpayers in productive assets rather then parking the money in unproductive assets.

With Budget 2020 round the corner and the FM indicating the need for investment of Rs 100 lakh crore in infrastructure, it is high time this deduction sees the light of the day.

Source : Financial Express