Saturday, July 15, 2006


Two years after the withdrawal of the highly popular tax-free Relief Bonds, investors will soon celebrate the return of a new high-return, tax-free instrument. The Center has given the go ahead to municipal bonds, better known as munis globally, that will offer 8% tax-free return and carry Central Government Guarantee. The rate of return on these tradable bonds of varying maturities would be
equivalent to 11.4% taxable. Till now only a few municipalities such as Ahmedabad and Nasik have floated bonds. At present, there is a cumulative ceiling on annual municipal bond issuance's (of as low as Rs. 150-200 crore) and only select issues get a tax-free status. The Government has now done away with both these restrictions. Through these bonds, the Government try to give a big boost to development of urban infrastructure. Some of these bonds will hit the market in the current fiscal.
To take advantage of the scheme, municipal corporations are working on switching over to an accrual-based system of accounting from the present cash based system. ICAI is already working
on the draft norms for the new system, which the municipal bodies are expected to adopt soon.


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