The notification, incorporating changes to enable issue of tax-free bonds, has left many of the earlier ambiguities unanswered as well as adding new complexities to an already confused issue, say bankers. The notification has included a new clause, which limits the availability of tax-free status to three assessment years.

It says "approval of the CBDT shall at any one-time have effect for a period not exceeding three assessment years". Bankers say they are not comfortable with the clause as the tax-free status will be valid only for the first three years, while the maturity of these bonds without exception will be for a much longer duration.

The three-year clause will require complex structuring of the bond offer so that, the bond will need to carry a higher couponrate for the rest of the maturity period after the expiry of the three year tax-free status period, said a financial institution source.

Apart from reducing the attractiveness of the bond offer, the `three year condition' will also cause further delay to the bonds offerings on the anvil because of the complex structuring required. The CBDT notification has also not addressed the numerous ambiguities existing in the finance bill, bankers said.

These include the confusion regarding whether the interest on these bonds is eligible for tax-free status on a net basis or gross basis. The bankers had earlier represented that the ambiguity on this count will be interpreted differently by the individual assessing officers. The finance bill defines an eligible entity as an "enterprise to be wholly engaged in the business of developing, maintaining and operating an infrastructure facility".

This effectively rules out any company that merely operates an infrastructure facility from availing of the tax-free status.Most infrastructure companies operates through agents, making it impossible for any company to comply by the definition.

According to bankers, though the issues are minor they will not be in a position to invest in these bonds unless these ambiguities are rectified. "The entire issue lacks clarity. The government should address these immediately," said an investment banker.The notification, however, has clarified on a major issue of dispute. As per the wordings in the Finance Bill, it was earlier felt that the investing entity had to get CBDT clearance to avail of the tax concession.

The notification has brought clarity to the issue by stating that it will be the responsibility of the company to get itself approved by CBDT that its bond offering is eligible for tax-free status.

This may also enable wider retail investor participation in infrastructure bonds, which was earlier restricted to institutional investors, said an investment banker.