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April 2013

Clarification for Section 372A(3)

By Sejal Vasa, Company Secretary
Reading Time 1 mins
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Vide General Circular No. 6/2013 dated 14-03-2013, the Ministry of Corporate Affairs has issued a clarification to Section 372A (3). The Ministry noted that the response to the Tax Free Bonds [issued under Income Tax Act Section 10(15)] issued by the Government, carrying a lower rate of interest, currently in the range of 6.75% to 7.5% was less.

The provisions of Section 372A(3) do not permit “any loan to any body corporate to be made at a rate of interest lower than the prevailing bank rate, being standard rate made public u/s. 49 of the Reserve Bank of lndia Act, 1934 (2 of L934).” Through this clarification the Government clarifies that there is no violation of Section 372A(3) by investment in these Bonds as the effective yield ( effective rate of return) on tax free bonds is greater than the yield of the prevailing Bank rate.

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