To encourage investment in the infrastructure sector, some financial institutions have been allowed to raise about Rs 50,000 crore from tax-free bonds in 2013-14.

"I propose to allow some institutions to issue tax-free bonds in 2013-14 strictly based on the need and capacity to raise money in the market up to a total sum of Rs 50,000 crore," Finance Minister P Chidambaram said, while presenting the Union Budget 2013-14 in Parliament.

Institutions allowed to issue tax-free bonds raised Rs 30,000 crore in 2011-12, and are expected to raise about Rs 25,000 crore in 2012-13.

Emphasising on the need to create new and innovative instruments to mobilise funds for meeting the 12th plan target of investments up to USD 1 trillion or Rs 55,00,000 crore in the infrastructure sector, Chidambaram said, "Infrastructure Debt Funds (IDFs) will

be encouraged".

These funds will raise resources and, through take-out finance, credit enhancement and other innovative means, provide long-term low-cost debt for infrastructure projects, he added.

Moreover, India Infrastructure Finance Corporation Ltd (IIFCL), in partnership with the Asian Development Bank, will offer credit enhancement to infrastructure companies that wish to access the bond market to tap long term funds, he said.

Besides, Chidambaram extended the benefit of 5 per cent tax rate on interest paid to non-resident investors to investment made through a designated bank account in rupee denominated long term infrastructure bonds.

With a view to attracting investments in long term infrastructure bonds in foreign currency, the rate of tax on interest paid to non-resident investors was reduced last year from 20 per cent to 5 per cent.

The government had allowed financial institutions to raise Rs 60,000 crore through Infrastructure Debt Funds (IDFs) last year.