The IFCI Infra bonds are the latest in the band of tax saving infrastructure bonds on offer for the purpose of tax saving and are the second in the series issued by IFCI. These bonds are the first of its kind since the finance minister announced a new income tax section — 80CCF — which entitles a tax payer to exemptions on money invested in infrastructure bonds. Issued for the purpose of reducing your taxable income under section 80CCF with an overall cap of Rs 20,000 per annum, the IFCI Long term infrastructure bond Series – 2 opened on 16, November and is open till 30 December, 2010. The proceeds from the same would be utilized by IFCI for further infrastructure lending.
These funds are expected to be a hit among retail investors, because of attractive rates of interest as well as tax exemptions. On an investment of Rs 20,000, an individual in the 30 per cent tax bracket can save Rs 6,000 of tax and earn an annual interest of 7.85-7.95 per cent. This issue is 50 basis points, or half a percentage higher than similar L&T bonds issued earlier. According to the government notification, the bonds will have a minimum tenure of 10 years, and investors will be locked in for five years and IFCI hopes to raise Rs 100 crore, including a green-shoe option of Rs 50 crore.
IFCI has already begun a private placement of unsecured redeemable, non-convertible long-term infrastructure bonds of up to Rs 20,000 for this financial year. The interest rate is 7.85 per cent for buyback option and 7.95 per cent for non-buyback option, under cumulative and non-cumulative (September 15 yearly) interest schemes. However, under the 7.85 per cent bonds with a buyback option, the investor can redeem the bonds after the fifth year. The buyback starts from 2015 to 2019. The 5-year lock-in is compulsory to avail of the 80 CCF benefit.
Those who have already exhausted their annual tax savings limit of Rs 1 lakh can keenly look at these bonds. The exemption for investments in infrastructure bonds is in addition to the investments of Rs 1 lakh in tax-saving instruments under Section 80C. After the lock-in period, an investor can take loans against these bonds. Investors also have the exit window through the secondary market or through a buyback facility. Surely, as the year is coming to an end; these bonds will find many takes who wish to benefit from the additional tax benefit on offer.
All about the IFCI bond
Here are answers to some of the most common questions on these bonds
How can you buy the IFCI infrastructure bonds?
You can buy these bonds through your broker like ICICI Direct, or can submit an application form in one of the bank branches that are accepting them. The information memorandum lists down a large number of HDFC bank branches so you can go to one near your house, and they might be selling the bonds or can at least tell you where you will get them.
Is a Demat account necessary to apply for the IFCI Infra Bond?
No. it is not necessary to have a demat account to invest in these bonds.
Can one invest in all the four option?
Yes an applicant can subscribe to all the four options but the minimum application under each option shall be only one bond or Rs 5,000.
Are these infrastructure bonds tax free?
No. The interest received in these bonds are not tax free. The investor is liable to pay tax on the interest received. The investor saves tax based on the amount of investment and the applicable tax bracket.
Who can apply for these bonds?
Only resident Indian individuals and HUF can invest in the bonds
Will TDS be deducted on these bonds?
No. TDS will not be deducted on the interest received if these bonds are held in the demat form.
Can one invest without a PAN in these bond?
No. PAN is mandatory when subscribing to these bonds.
