Investments in Infrastructure bonds are no longer eligible for tax deduction from AY 13-14 onwards.
The tax season is “in” and so are various tax saving products in market. For those who have already consumed the max 1 lakh limit, there is a scope of additional saving through the 80 CCF route. Any investment in infrastructure bonds upto a maximum of 20,000 would be deductible from your income.
What are infrastructure bonds?
Infrastructure bonds are issued by the government in order to raise funds for develop the infrastructure across the country through projects like land, air transport, highway and railway projects, power generation etc. Infrastructure bonds help in channelizing the retail investor’s savings into infrastructure sector directly and aim to boost the flow of funds into the sector.
These bonds are issued by various organizations such as (i) Industrial Finance Corporation of India; (ii) Life Insurance Corporation of India; (iii) Infrastructure Development Finance Company Limited; and or a Non-Banking Finance Company classified as an infrastructure finance company.
Why should I invest?
Given the high interest rate scenario (Nov 11), investors could lock-in these rates and enjoy it for a long period of time. Besides, there is obvious tax advantage:
| Tax Slab | Savings |
| 30% | Rs 6180 |
| 20% | Rs 4120 |
| 10% | Rs 2060 |
Why should I not invest?
These bonds are typically, long term in nature with tenure ranging from 10 to 15 years. Although, you will have a buy back option after 5 years, your investment gets locked in for a minimum of these many years.
Additionally, you get tax benefit only on your investment; interest income earned on the same would be taxable.
Features
| Interest Rate | Based on prevailing interest rate |
| Frequency of Interest Payment | 1.Annual 2.Cumulative |
| Tenure | 10-15 Years from the Deemed Date of Allotment |
| Buy back Option | Typically after 5 years from the Deemed Date of Allotment |
| Interest Income | Taxable |
| Min Investment & Face Value | Typically Rs 5000 per bond, will differ based on company. |
| Investment in Multiples of | Typically Rs 5000 per bond, will differ based on company. |
| Tax Benefit | Avail the additional Rs 20,000 deduction under section 80CCF of the Income-tax Act (apart from the Rs 1 lakh deduction under section 80C) |
| TDS | No TDS shall be deducted on the interest received if the bonds are kept in demat form. There will be TDS for bonds if they are kept in physical form when interest rate exceeds Rs. 2,500 p.a. |
| Capital gains Tax | A listed Bond is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer. |
| Nature of the Bond | Based on Credit Rating. |
| Issuance & Trading | Bonds shall be issued both in dematerialized form and physical form. However, trading allowed only in dematerialized mode after the expiry of lock-in period of 5 years |
It is always a good idea to look for the credit rating of the bond before making the investment.
For those who are getting ready for the tax season, it’s a wonderful avenue to get started while contributing to the development of the nation.
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