The Union budget for 2011-12 could extend the tax benefit on investments made in infrastructure bonds by a year while giving banks access to this special window in an effort to raise debt funds for building physical assets of the country.

The last budget had allowed a deduction of an additional Rs 20,000 for investment in longterm infrastructure bonds, over and above the Rs 1 lakh limit prescribed for investments in tax saving schemes. Only dedicated infrastructure companies or lenders were allowed to raise funds through these tax savings bonds.

"Various options for infrastructure financing are being examined," said a government official, adding extending this window is one of them. The budget for 2009-10 had limited the tax benefit on infrastructure bonds for one year.

This was because the government was hoping to roll out of the Direct Taxes Code from April this year. But now that the new code is unlikely to be implemented before April 2012, the government could extend the tax relief on these bonds.

Keeping in view the infrastructure fund requirements of the country and also to make the to make the tax deduction more meaningful, the government should enhance the investment limit to . 50,000, said Vikas Vasal, executive director, KPMG.

Infrastructure Development Finance Company (IDFC), IFCI and L&T Infrastructure Finance have already raised about Rs 5000 crore so far in the fiscal through these bonds. IDFC has already raised over . 1,200 crore in two tranches of its infrastructure bond issue in the current financial year. The rate of interest offered on these bonds has been in the range of 8% simple interest per annum.