The yield from these bonds is more thanks to the tax benefit. How these bonds work for an investor
In the Budget for 2010, the Finance Minister had mentioned floating of infrastructure bonds. The objective was to promote infrastructure investments in the country. Infrastructure requires huge investments. The gestation period is long and returns take a long time to come.
The Finance Minister had offered tax benefits to individuals on investments up to Rs 20,000 in infrastructure bonds under Section 80CCF. This is over and above the current limit of Rs 1 lakh under Section 80C. The Central Board of Direct Taxes (CBDT) has now notified New Infrastructure Bonds. An individual or a Hindu Undivided Family (HUF) can invest in these new infrastructure bonds up to Rs 20,000 in a financial year. Non-banking financial companies (NBFCs) classified as infrastructure companies by the Reserve Bank of India (RBI) will be allowed to issue these bonds, called long-term infrastructure bonds.
The minimum application amount for these bonds is Rs 5,000 and multiples thereof for each option. The bonds will be of 10-year tenure. The minimum lockin period for an investor will be five years. After five years, the investor may exit either through the secondary market or through a buy-back facility, specified by the issuer in the issue document at the time of issue. PAN is a must to apply for these bonds.
These infrastructure bonds are not tax-free. Interest on these bonds is taxable in the hands of the investor. However, no tax is deducted at source from the interest.
A demat account is mandatory to apply. Any application without a demat account number will be rejected. Submitting an attested PAN card copy of the first holder is also compulsory while applying.
The interest received on these bonds will be treated as 'income from other source' and will form a part of the total income of the assessee of the financial year in which they are received.
Only resident Indian individuals and HUF can invest in these bonds. A minor is not eligible to apply for subscription to these bonds.
An application can be made in joint names with a maximum of three applicants. In this case, the demat account should also be held in the joint names and the order of applicant should be the same as appearing in the demat account.
The maximum benefit to an investor will be Rs 20,000 under Section 80CCF of the Income Tax Act. The allotment will be made for the sum applied. However, the benefit under Section 80CCF can be availed only for a maximum sum of Rs 20,000. While the application can be made in joint names, the tax benefit can be availed only by the first applicant.
The interest will be credited to the respective bank registered with the demat account through ECS on the due date for interest payment. These bonds may be mortgaged or pledged to avail a loan after the lock-in period.
