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Municipal bond in India
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.
  • Municipal Bonds issued by the ULBs, are redeemable after a specific period and have a definite rate of interest.
  • Municipal bonds are appropriate instruments - raising resources, channeling funds from the capital market into infrastructure development.
  • Long term in nature, unlike bank loans that are of shorter tenure.
  • Provides opportunities for long gestation infrastructure development projects. 
  • About 11 ULBs out of 65 continued their reliance on institutional and bank borrowings to finance urban infrastructure projects from commercial banks.
  • Agra , Allahabad, Lucknow , Varanasi, Kanpur, Meerut are using JnNURM revolving fund to fund the capex for their projects.

Municipal bond issues in india

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