Tax Free Bonds - Clarification
BUDGET 2013-14 authorizes Union Government to raise Rs. 50,000 crores (Tax Free Bonds). These bonds carry a lower rate of interest, currently in the range of 6.75 to 7.5 per cent which is tax free under Section 10(15) (iv)(h) of the Income Tax Act, 1961. Such bonds were also provided for in Budget 2012-13, but the response had been poor due to restrictions under Section 372A(3) of the Companies Act, 1956.
Section 372A (3) of the Act inter alia provides that "No loan to any body corporate shall be made at a rate of interest lower than the prevailing bank rate, being standard rate made public under section 49 of the Reserve Bank of India Act.
Now, Ministry of Corporate Affairs clarifies that in cases where the effective yield (Effective rate of return) on tax free bonds is greater than the yield on prevailing bank rate, there is no violation of Section 372A(3) of Companies Act, 1956.
MOC F. No. -CL-V, Dated: March 14 2013