Rule 107 — GFR 2017
Original Rule Text
Rule 107
How interest charged to capital is to be
written back. When under any special
orders of Government, charges for
interest
during
the
process
of
construction of a project are temporarily
met from capital, the writing back of
capitalised interest shall form the first
charge on any capital receipts or surplus
revenue derived from the project when
opened for working.
What This Means
This rule explains how the government handles interest payments for large construction projects. Sometimes, when a big project like a new bridge or a power plant is being built, the interest on the loans taken for its construction might be paid directly from the project's main construction fund (which is called 'capital'). This is only allowed if the government issues a special order for it.
The core of the rule is about what happens once the project is completed and starts generating income or revenue. At that point, the very first priority for any money the project earns – whether it's from selling services, products, or any other surplus income – must be to pay back the interest that was initially taken from the construction fund.
Essentially, it ensures that the interest costs, which were temporarily covered by the project's capital during its building phase, are recovered as soon as the project becomes operational and starts generating its own funds. This prevents the capital fund from being permanently reduced by these interest payments and ensures financial discipline.
This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.
Key Points
- 1This rule applies when the government specifically allows interest costs during a project's construction to be paid from the project's main capital fund.
- 2Once the construction project is completed and begins operating, it will likely generate income or revenue.
- 3The first use of any money earned by the operational project must be to repay the interest that was initially covered by the capital fund.
- 4This repayment takes precedence over other financial obligations or uses of the project's income.
- 5The purpose is to restore the capital fund by recovering the interest amounts that were temporarily drawn from it.
Practical Example
The Ministry of Infrastructure undertakes a major project to construct a new expressway, "Bharat Expressway," with a total estimated cost of ₹5,000 crores. Due to the long construction period and a special government order, the interest charges on the loans taken for the project during its 5-year construction phase, amounting to ₹300 crores, are temporarily met from the project's capital fund. This means ₹300 crores of the capital was used to pay interest instead of direct construction.
Upon the successful completion and opening of the Bharat Expressway for public use, it starts generating revenue through toll collections. In its first year of operation, the expressway collects ₹150 crores in tolls and other related receipts. According to Rule 107, the first ₹150 crores of this revenue must be allocated towards "writing back" or repaying the ₹300 crores of interest that was initially paid from the capital fund. No other expenses or allocations can take priority over this repayment until the capitalised interest is fully recovered. The remaining ₹150 crores of interest will be recovered from future revenues.
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.