Tax-Free Bonds Can Have Higher Returns Than Bank Rates

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    Tax-free bonds can provide returns that are higher than the prevailing interest rates offered by banks.

    The corporate affairs ministry has said tax-free bonds providing more yield than prevailing bank rates would not violate provisions of the Companies Act.

    The ministry has provided clarity on the matter at a time when many entities, including the Railways, are looking to raise funds by way of issuing tax-free bonds.

    Tax-Free Bonds Can Have Higher Returns Than Bank Rates

    "In cases where the effective yield (effective rate of return) on tax-free bonds is greater than the prevailing yield of one year, three-year, five-year or ten-year government security closest to the tenor of the loan, there is no violation of... Companies Act, 2013," it said in a circular issued on Thursday.

    Earlier this week, Finance Minister Arun Jaitley said the proposal to allow railways and highways to issue tax-free bonds has been cleared.

    "I today cleared a proposal for both (highways and railways) these sectors to have a large investment by way of tax-free bonds," he had said.

    PTI

    Story first published: Saturday, April 11, 2015, 9:57 [IST]
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