Skip to main content

Tax Planning: Save more tax with infrastructure bonds

 

 

BUDGET 2010 saw the Finance Minister doling out sops to push infrastructure investments in the country. One key sop - the tax benefit to individuals on investment of up to Rs 20,000 in infrastructure bonds under section 80CCF. And this, over an above the current limit of Rs 1 lakh that section 80C provides.

The Central Board of Direct Taxes (CBDT) has now notified New Infrastructure Bonds. An individual or Hindu Undivided Family (HUF) can invest in these new infrastructure bonds up to Rs 20,000 in a financial year. LIC, IFCI, IDFC and other NBFCs classified as Infrastructure Company by 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 issue opens on August 9, 2010 and closes on August 31, 2010.

Features of the bond:

- The bonds will be of 10 year tenure

- The minimum lock in period for an investor shall be five years. After 5 years the investor may exit either through the secondary market or through a buyback facility, specified by the issuer in the issue document at the time of issue.

- Permanent Account Number is must to apply these bonds.

- These infrastructure bonds are not tax free. Interest on these bonds is taxable in the hands of investor, however, no TDS is deducted from interest.

- A demat account is mandatory to apply; any application without demat account details would be rejected. Submitting an attested pan card copy of the first holder is also compulsory while applying.

- The coupon rate for the bonds is as follows:

Options

I

II

III

IV

 

Buyback / Non Cumulative Option

Buyback / Cumulative Option

Non Buyback / Non Cumulative Option

Non Buyback / Cumulative Option

Minimum Application / Face Value

5,000/-

5,000/-

5000/-

5,000/

In Multiples of

5,000/-

5000/-

5,000/

5000/-

Buy Back Option

Yes

Yes

No

No

Interest Payment

Yearly

NA

Yearly

NA

Coupon

7.85% per annum

7.85% to be compounded annually

7.95%

7.95% to be compounded annually

Yield on Redemption

7.85%

7.85%

7.95%

7.95%

Coupon Payment Date*

September 15 every year

NA

September 15 every year

NA

Redemption Date

September 15, 2020

September 15, 2020

September 15, 2020

September 15, 2020

Buy Back Period

Every Year Between August 16 to August 31, starting from Year 2015 till Year 2019

Every Year Between August 16 to August 31, starting from Year 2015 till Year 2019

NA

NA

Redemption Amount (in case the buyback option is exercised) & final redemption amount at the end of 10 years.

Year 5*

5000

7296/-

-

-

Year 6*

5000

7868/-

-

-

Year 7*

5000

8486/-

-

 

 

 

Frequently Asked Questions on IFCI Long Term Infrastructure Bonds

What is the Tax Treatment of interest on these Bonds?

The interest received on these bonds shall be treated as income from any other source and shall form part of the total income of the assessee in that financial year in which they are received.

Who are the eligible investors?

Only Resident Indian Individuals (Major) and HUF can invest in these bonds.

Can a Minor apply for subscription to these bonds?

A minor is not eligible to apply for subscription to these bonds.

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.

Will TDS be deducted on these bonds?

No TDS shall be deducted on the interest received as these bonds are issued compulsorily in Demat mode and shall be listed on Bombay Stock Exchange.

I don't have Demat Account. Can I apply?

The bonds shall be compulsorily issued in Demat mode, so investors without demat shall not be eligible.

I only have a joint De-mat account. Can I apply in my own name only?

The name of applicant shall be same as the holders of Demat account. In case of single applicant the demat account shall also be held in the name of the same single applicant.

Can I apply in joint names?

Yes application can be made in joint names with a maximum of three applicants, however the demat account shall also be held in the joint names and order of applicant shall be the same as appearing in the demat account.

What is the maximum amount for which the benefit u/s 80CCF be availed?

Maximum benefit to an investor shall be Rs. 20,000/- under section 80CCF of the Income Tax Act, 1942

What would happen if I apply amount more than Rs. 20,000/-?

The allotment shall be made for the sum applied, however the benefit under section 80CCF may only be availed for a maximum sum of Rs.20,000/-

Can I invest in all the four option?

Yes an applicant may subscribe to all the four options but the minimum application under each option shall be one bond i.e. Rs.5000/-

What is the benefit of investing in Tax Free Infrastructure Bonds if they offer the same tax benefit?

The Tax exemption benefit on a sum of Rs. 20,000/- is over and above Rs. 1,00,000/- benefit under section 80C, 80CCC and 80CCD


What is the tenure & lock-in period of these Tax Free Infrastructure Bonds?

The maximum maturity period of these bonds shall be 10 years however there shall be a buy back option at the end of 5th year onwards. After the end of 5th year the investor shall have the option to participate in the buy back offer by the issuer which shall be open between 16th August to 31st August every year from the end of 5th year till the maturity of the bonds.

Who can offer these Long Term Infrastructure Bonds?

The entities like LIC, IDFC, IFCI and other NBFCs which are classified as Infrastructure Finance Companies by RBI shall be allowed to issue these long term infrastructure bonds.

I Don't have a PAN card. Can I still apply for subscription?

PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.

How will I get my interest on the due date?

The interest shall be credited to the respective Bank registered with the Demat account through ECS on the due date for interest payment. And if the due date is a public holiday then the next working date.

Can I get loan on these bonds?

Yes, these bonds may be mortgaged or pledged to avail the loans after the lock in period.

Where shall I submit the application forms?

The application form may be submitted at the office of the arranger or at the office of IFCI.

Who shall pay the interest and repay the Principle amount?

IFCI Limited shall pay the interest on these bonds and also the principle amount to the investor upon maturity of the bonds or at the time of buy back

Can I apply in joint names?

Yes, application can be made in joint names but the tax benefit shall only be availed by the first applicant.

Who would get the interest in case of the joint application?

In case of joint application the interest shall be paid to the account of the first applicant only.

A list of Do's and Don'ts to keep in mind

Do's

  • Check if you are eligible to apply
  • Sign the application wherever required
  • Attach a copy of self attested PAN Card along with the application form
  • In case of HUF applicant kindly put the stamp of HUF on the application form
  • Ensure that you mention the PAN no. allotted under the IT Act on the application
  • Check that you have mentioned correct DP Name, DP ID and Client ID on the application form
  • Check there is no name mismatch with the Demat account
  • In case of joint application check that the name on application form appears in the same order as it appears in Demat account
  • Read all the instruction carefully and complete the application form
  • Application shall be signed by Karta in case of HUF



Don'ts

  • Do not apply for an amount lower than the minimum application
  • Do not pay the application money in cash
  • Do not submit unsigned application

 


Popular posts from this blog

Mutual Fund Review: Taurus Tax Shield

    Taurus Tax Shield has seen a turnaround in performance since 2007, but still remains a volatile offering… The fund has seen a turnaround in its performance since 2007 and has delivered impressively during market rallies since then. The portfolio is also more diversified. It contained its downfall to an average level in 2008 but is still one of the most volatile offerings in this category. Bold investors can look at this fund.   Strategy The fund manager invests across the market capitalisation and sectors. The selection of stocks is made on the basis of long-term business prospects and value creation. Fund Insight Launched in March 1996, the fund was a laggard with just two annual outperformances. Concentrated stock bets and high exposure to mid and small caps led to it being hit harder during market downturns. The number of stocks in the portfolio never exceeded 20 and it was not rare to see the top 5 holdings account for around 60 per cent of the portfolio. After b...

Health insurance guide - Part I

Insurance, by definition, is morbid. What if I die suddenly? What if my home caught fire? What if I had to undergo expensive medical treatment? What if something that I thought happened only to others befell me? Insurers, who work with large samples, calculate the probability of such an event and, hence, the possibility of them having to pay out a sum of money to mitigate, to the extent possible, the effects of that disaster. However, the possibility of you undergoing some kind of expensive medical treatment during your lifetime is far more likely than you dying suddenly or your house burning down. Given that costs at private healthcare facilities, where you are most likely to land up, is high, and, doubling every four years 10 months or so, the rest of your money life could easily go out of whack if you had to incur such expenses. Just 12 per cent of India's population is covered with some sort of health insurance. Pared to the bone, for a comparatively small price, health insu...

AXIS Long Term Equity Fund - The Best Tax Saver Fund for 2016

  AXIS Long Term Equity Fund - Invest Online   History:   The open ended mutual fund was launched on December 21 in the year 2009. It is benchmarked against BSE 200 and managed by the fund manager JINESH GOPANI. Initially the scheme was called as Axis tax saver fund but later it was renamed as Axis long term equity fund with effect from September 2, 2011. Nature of investment: As far as asset allocation is concerned, 97.52% of the stocks are equity and 0.02% is debt based. The primary focus of the fund is to invest in diversified equity stocks that have higher growth potential. Total asset size of the fund is in the tune of 4,996 CRORE as of June 30, 2015. Performance: The performance of the fund for one year, 3 years and 5 years are 23.6%, 29.9% and 19.1 respectively which are far greater than 6.4%, 14% and 5.6% benchmark figures. It has also preformed fairly well against SBI magnum Tax Gain (G) and HDFC tax saver (G). The growth comparison is enumerated below;                        ...

IDFC Classic Equity Fund

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)   IDFC Classic Equity Fund IDFC Classic Equity is a large-cap equity fund which currently has assets under management worth Rs. 158.52 crore. It was launched in August 2005. The fund is benchmarked against the BSE-200 Index. Performance YTD 1-Year 3-Year 5-Year Since Inception IDFC Classic Equity 0.93 26.61 6.30 1.01 11.65 BSE 200 1.52 17.31 6.00 1.99 12.98 All figures in % as on January 31, 2013; Returns above one-year in CAGR terms ...

10 year NSC launched, all set to give 8.7 per cent

Invest in Mutual Funds Online Download Mutual Fund Application Forms THE government introduced a 10-year National Savings Certificate ( NSC ), which will earn an interest rate of 8.7 per cent per annum. The notification for the launch of the new savings instrument, 10-year National Savings Certificate (IX-Issue), 2011, has been issued, an official statement said. The scheme will come into effect from December 1, it added. Investments in NSC will earn interest at the rate of 8.7 per cent compounded semi-annually, it said, adding that on an investment of Rs 100, the depositor will get Rs 234.35 on maturity of the NSC. There is no upper limit for investment in the certificate, it added. The new scheme will give better returns along with tax benefit to savers. At present, the maturity period of NSC is six years and it qualifies for tax relief for investment up to Rs 1,00,000 under Section 80C. The decision to raise the maturity period of NSC has been taken on the b...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now