Reserve Bank on Tuesday allowed Indian entities to issue tax-free bonds to overseas residents for investment in infrastructure sector.

“On a review, it has been decided to permit such resident entities/companies in India, authorised by the Government of India, to issue tax-free, secured, redeemable, non-convertible bonds in rupees to persons resident outside India...,” RBI said in a notification.

However, it said, funds raised should be used for lending to the infrastructure sector.

Besides, the borrowed funds can be kept in fixed deposits with banks in India pending utilisation by them for permissible end-uses, it said.

As per the current regulation, the central bank imposes restrictions on persons resident in India who have borrowed in rupees from a person resident outside India to the effect that such borrowed funds cannot be used for any investment.

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