IN order to attract long-term foreign investment in the infrastructure sector, the Budget 2011 has proposed to set up an 'Infrastructure Debt Fund', the income of which is proposed to be tax-exempt. Additionally, it has also been proposed to amend section 115A of the Income-tax Act to provide that any interest received by a non-resident from such notified infrastructure debt fund shall be taxable at the rate of five per cent on the gross amount of such interest income. 

Accordingly, it has also been proposed to insert a new section 194LB to provide that tax shall be deducted at the rate of five per cent by such notified infrastructure debt fund on any interest paid by it to a non-resident. These amendments are proposed to take effect from 1st June 2011.

As a result of this proposal it is expected that the foreign pension funds etc will consider investing substantially in this important sector.