Rule 105 — GFR 2017
Original Rule Text
Rule 105
(1) Charging of interest on capital
outlay met out of specific loans raised
by Government. For capital outlay met
out
of
specific
loans
raised
by
Government,
the
interest
shall
be
charged at such rate as may be
prescribed
by
Government,
having
regard to the rate of interest actually paid
on such loans and the incidental charges
incurred in raising and managing them.
By specific loans are meant loans that are
raised in the open market for one specific
purpose which is clearly specified in the
prospectus and in regard to which definite
information is given at the time of raising
of the loans.
Rule 105
(2) For capital outlay provided otherwise,
interest shall be charged at the rate of
interest to be determined each year by
the Department of Economic Affairs,
Ministry of Finance.
What This Means
This rule explains how the government calculates and applies interest when it spends money on big, long-term projects, like building new roads, hospitals, or power plants. The way interest is calculated depends on where the money for that project originally came from.
If the government takes out a special loan specifically for one particular project – for example, issuing bonds to fund a new railway line, and this purpose is clearly stated when the loan is raised – then the interest charged on that project will be based on the actual interest rate paid on that specific loan, plus any additional costs involved in getting and managing that loan. These are called "specific loans."
However, if the money for a project comes from the government's general funds (not a specific loan), then a standard interest rate will be applied. This standard rate is determined and announced every year by the Department of Economic Affairs within the Ministry of Finance. This ensures a consistent approach for projects funded from the general budget.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1Government capital projects are subject to interest charges.
- 2The method for calculating interest depends on the funding source for the capital outlay.
- 3For projects funded by "specific loans" (open market loans for a single, stated purpose), the interest rate is based on the actual loan interest and associated costs.
- 4For projects funded from general government resources, a standard interest rate is set annually by the Department of Economic Affairs, Ministry of Finance.
- 5"Specific loans" are clearly defined as those raised in the open market for one explicit purpose, detailed in the prospectus.
Practical Example
Imagine the Ministry of Infrastructure Development is planning two major projects in the financial year 2023-24.
For the "Coastal Economic Corridor" project, estimated at ₹5,000 Crores, the Ministry decides to raise funds through a special "Coastal Corridor Development Bond" in the open market. The prospectus for this bond clearly states that its proceeds are exclusively for this corridor project. The bond is issued at an average interest rate of 7.5%, and the incidental charges for raising and managing it amount to 0.5% of the principal. According to Rule 105(1), the interest charged on the capital outlay for the Coastal Economic Corridor project will be calculated at 8% (7.5% + 0.5%).
Simultaneously, the Ministry is also undertaking a "Rural Connectivity Improvement" project, estimated at ₹1,500 Crores, which is funded through its regular annual budgetary allocation from the Consolidated Fund of India. For this project, Rule 105(2) applies. The Department of Economic Affairs, Ministry of Finance, has announced a standard interest rate of 6.8% for capital outlay funded otherwise for the year 2023-24. Therefore, the interest charged on the capital outlay for the Rural Connectivity Improvement project will be 6.8%. This distinction ensures that the true cost of funding is accurately reflected for each type of project.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Frequently Asked Questions
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This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.