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Definition: Revenue Anticipation Note
It is a bond issued by a local governing body, having a maturity period of a year or less and which intends to repay its bondholders from the revenues it earns by financing some project. They are issued when the local government needs funds immediately for financing a project i.e. when the government has a budget deficit. The sources of the anticipated revenue can be sale, fee charged, etc. The noteholdergets a tax benefit on the interests earned on the note.
Eg – Consider that the municipal corporation in Mumbai needs funds to do the repair works in some park. But they find that the revenues for the period are less than the costs it would incur. So they issue RANs to the public for this project. They may earn revenues on it by charging a minimal entry fee for it and repay the noteholders through interests. Thenoteholders will get a tax exemption on the interests earned from it.