Sunday, February 5 2006 15:11 Hrs (IST) - World Time -

New Delhi: With the UPA embarking on massive infrastructure development requiring over Rs 3,00,000 crore investment, the Budget may come up with tax incentives on debt instruments of companies engaged in the sector.

Special purpose vehicles (SPVs) set up for the purpose of infrastructure funding are likely to be exempted from tax deducted at source (TDS).

"Since infrastructure projects have long gestation period and will not make profits in the initial years, tax incentives are required in the initial years," a tax expert said.

Tax incentives will serve the twin purpose-channelising more household savings to infrastructure and enabling companies to complete mega projects at a lower cost.

SPVs set up by asset reconstruction companies for scrutinising bad debts of banks may also get tax incentives, which will generate interest among investors and help banks in mobilising more resources for lending to infrastructure and other needy sectors.

There is also thinking in Finance Ministry on encouraging specialised Rupee Debt Funds that will specifically invest in infrastructure, in the lines of the recommendation of R H Patil committee.

Such funds could get the same tax exemptions as enjoyed by Venture Capital (VC) funds. At present, VC funds listed with SEBI get tax sops under Section 115U and 10(23FB) of Income Tax Act.