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Municipal bond
Municipal bond

In 2000-01, the Government inserted a new clause (vii) in Section 10(15) of the Income Tax Act, 1961, exempting interest income from bonds issued by local authorities.
Guidelines for issue of municipal tax free bonds have been revised in consultation with the Ministry of Finance and circulated to all the State Governments and UT Governments on 7th March, 2006.

As per guideline the funds raised from Tax Free Municipal Bonds shall be used only for capital investments in urban infrastructure for providing one or more of the following:
         i.            Potable Water Supply;
       ii.            Sewerage or Sanitation;
      iii.            Drainage
     iv.            Solid Waste Management;
       v.            Roads, Bridges and Flyovers; and
     vi.            Urban Transport (if this is a municipal function under respective state legislation)
The capital investments shall be for the following purposes :
(a)    setting up of new project(s);
(b)   expansion, augmentation or improvements of the existing system.

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