Actively working to raise funds via zero-coupon, 54EC bonds, says IRFC CMD
This story was originally published at 20:17 IST on 20 January 2025
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NEW DELHI – Indian Railway Finance Corp. Ltd. is "actively working" towards raising cheaper funds through zero-coupon bonds and capital gains tax exempted or 54EC bonds, Chairman and Managing Director Manoj Kumar Dubey said Monday. The company wants to deploy the "resources towards railway infra-eco-system at the most competitive rates," he said in a press release detailing the company's financial performance for the quarter ended December.
The mini-ratna company Monday reported a net profit of INR 16.31 billion in Oct-Dec, up 2% on year. Shares of the company closed at INR 146.70 on the National Stock Exchange, up 0.4% from the previous close.
IRFC is one of the infrastructure companies eligible for raising funds through the special 54EC bonds. As per the Income Tax Act, investors making capital gains on the sale of immovable property can invest in 54EC bonds to save on long-term capital gains tax. Though the bonds offer a lower rate of interest of 5.25%, investors benefit from the tax exemption enjoyed by these instruments. Investors can invest up to 5 mln rupees in a financial year in these bonds, which have a lock-in period of five years.
Zero-coupon bonds, on the other hand, have been the talk of the town ever since REC Ltd. raised funds through it in October, with the instrument making a comeback in the corporate bond market after a 13-year hiatus. Non-interest-bearing bonds, or zero-coupon bonds as they are popularly known, sell at a discount and do not offer any periodic interest payment. Fundraising through this instrument needs permission from the finance ministry's Central Board of Direct Taxes, allowing the return on these papers to be classified as capital gains rather than interest income, which gets taxed at a much higher rate.
In the full Budget for 2024-25 (Apr-Mar), the long-term capital gains tax was revised to 12.5%. Earlier, the long-term capital gains tax on these assets was 20% but had indexation benefits, which adjusted for inflation. Had the income from the bonds been classified as interest income, it would have been taxed at the marginal tax rate. For institutional investors, this would be the corporate tax rate of about 25%, after cess and surcharges.
The REC's zero coupon bonds saw demand from long-term investors, ultra-high net worth individuals, and large corporations. Informist reported in December that the finance ministry is likely to consider giving more public-sector lenders approval to raise funds through zero-coupon bonds.
Dubey also said that IRFC is making efforts to diversify its lending portfolio as per its current mandate into sectors with backward and forward linkage with Indian Railways. IRFC's total assets under management at the end of December was INR 4.61 trillion, Dubey said. End
Reported by Priyasmita Dutta
Edited by Saji George Titus
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