Sarbajeet K. Sen
K.R. Srivats

Decision in keeping with Govt intention to finetune I-T laws

New Delhi , March 19

The chances of the Government having a relook at its decision to do away with tax exemption available for lending to infrastructure projects under Section 10(23G) of the Income Tax Act appears to be remote.

Defending the proposal to scrap the provision, the Finance Ministry has held that the removal of exemption would not have any significant impact on the viability of infrastructure projects.

Talking to Business Line, the Revenue Secretary, Mr K.M. Chandrashekhar, said that the Finance Ministry felt that there was no rationale for continuing with the provision in an era of low interest rates. He also said that the decision to scrap the clause was also in keeping with the Government's overall intent to do away with the variety of tax exemptions under the income-tax law.

Section 10(23G) of the Income Tax Act exempts income by way of dividend, interest and long-term capital gains arising out of investments made in an enterprise engaged in the business of developing, maintaining and operating an infrastructure facility. The exemption is available to infrastructure capital fund or infrastructure capital company so long as certain conditions are fulfilled.

"We do not think that the viability of projects funded with the financier taking benefit of the clause would be impacted. There is sufficient competition among lenders for infrastructure funding to ensure that borrowers get adequate funds at reasonable rates," Mr Chandrasekhar said.

The Revenue Secretary's comments assume significance since it came hardly a couple of days before the Finance Bill, 2006, proposing the amendment to the tax laws was to be taken up for passage by Parliament. The Bill has now been taken up for discussion on Saturday.

Mr Chandrasekhar confirmed that the Ministry has received representation from lending institutions catering to the requirement of infrastructure sector requesting for a continuation of the clause.

"We have received some representations from the lenders. But not many representations have come from projects," he said.

He, however, said that the final call on the future of the clause would depend entirely on the view taken by the Finance Minister, Mr P. Chidambaram.

The Revenue Secretary pointed out that Section 10(23G) was introduced to provide comfort to infrastructure sector projects during the mid-90s when interest rates were ruling at a high level. "At one point interest rates were as high as 17-18 per cent. There has been a sharp reversal in the overall interest rate scenario since those years. We also wanted to do away with the clause since we wanted to get away from the exemption regime," Mr Chandrasekhar said.

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