Pvt-sector DFIs to be provided five-year tax relaxation

The government has decided to provide a five-year income tax holiday to private sector development finance institutions (DFIs) to build a robust funding infrastructure system. They will join a state-owned DFI that's being set up.

A government official told a prominent media source that the government would move an amendment to the income tax act to provide the tax holiday, when the Finance Bill is taken up in the Parliament for passage.

The cabinet on Tuesday approved the National Bank for Financing Infrastructure and Development (NaBFID)—the state-run DFI proposed in the budget and a bill for the creation of government-owned as well as private DFIS. The DFI bill will soon be introduced in the Parliament.

The Centre plans for the NaBFID to enjoy a 10-year income tax holiday and receive a Rs 5,000 crore grant as cash or marketable securities in lieu of tax-free bonds.

Certain asset transfers to DFIs will also get stamp duty relief, a government official said.

The Reserve Bank of India (RBI) will regulate DFIs and formulate rules for them. DFIs set up in the private space in the 1990s were converted into scheduled commercial banks as they struggled with long-term infrastructure financing challenges.

The government is keen to ensure that DFIs succeed this time, given the need for such funding, by creating a facilitative framework. DFI will also support credit enhancement mechanisms, provide project development and monitoring, and help develop the bond market, thereby nurturing the overall infrastructure financing ecosystem. The National Infrastructure Pipeline (NIP) has pegged the funding requirement at over Rs 111 lakh crore till 2025.

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