What provides a tax exemption on income from certain bonds?

The correct choice highlights the concept of Interest Income Exemption, which is associated with certain types of bonds, particularly municipal bonds. The income earned from these bonds is typically exempt from federal income tax and, in some cases, state and local taxes as well. This tax benefit is one of the primary reasons investors are attracted to municipal bonds, as it can lead to higher after-tax returns compared to taxable bonds, especially for those in higher tax brackets.

Municipal bonds are often issued to fund public projects that serve the community, such as schools, roads, and infrastructure. Because these bonds contribute to public goods and services, the interest earned by bondholders is granted tax exemptions as an incentive for investors to contribute to public financing.

The other options, while they may relate to municipal finance, do not specifically pertain to the tax exemption of income from certain bonds. Utility Infrastructure refers to the projects funded by municipal bonds but does not itself provide a tax exemption. Debt Obligations may encompass a broad range of financial instruments, yet do not specifically indicate an income tax exemption. Authorized Purposes also pertains to the purpose of bond issuance rather than the tax implications on the income generated from those bonds.