Close

	Receiver's Name:		*
	Receiver's Email:		*
	Your Name:		*
	Your Email:
	Your Message:

Save an extra Rs 6,000 by investing in Infrastructure Bonds this tax year

Did you know that you can save up about Rs 6,000 in taxes this year if you invest in Infrastructure Bonds? Starting September 15, 2010, these bonds are available to all tax payers to get an extra deduction of Rs 20,000 in the tax year ending March 31, 2010. Here we share with you all the details you need to know on these bonds and how to invest in them.

Watch the video

What is this new tax deduction that allows me to deduct an additional Rs 20,000?

Under the existing tax laws, Section 80C allows every tax payer a deduction up to Rs 1 lakh for investing in certain notified instruments like insurance policies, ELSS funds, PF, PPF etc. However, earlier this year in the Annual Budget for the tax year ending March 31, 2010, the Finance Minister introduced another deduction of Rs 20,000 under Section 80CCF, which is over and above the Rs 1 lakh deduction allowed under Section 80C.

As per Section 80CCF, any individual or HUF can invest up to Rs 20,000 in Infrastructure Bonds issued by certain institutions as notified by the RBI (these have to non-banking finance companies in the infrastructure sector). For an investor in the highest income tax bracket of 30%, the saving through this deduction can be about Rs 6,000.

What are the features of these Infrastructure Bonds?

What are the variety options to invest in these bonds?

These infrastructure bonds have a maturity of 10 years, but a lock-in period of 5 years. Investors can choose to take a buy-back option where after the initial lock-in the investor can ask the issuer to buy-back his/her bonds. Investors also have the option where the interest is paid annually (non-cumulative option) or can choose the option where the interest is compounded annually but paid out at the end of the holding period on a cumulative basis. The following is a list of the 4 varieties available, that offer you flexibility in terms of the buy back option and when you want your interest income to be paid:

• Non-cumulative buy-back option (7.85% interest rate)
• Cumulative buy-back option (7.85% interest rate)
• Non-cumulative without buy-back option (7.95% interest rate)
• Cumulative without buy-back option (7.95% interest rate)

What do I need to invest in this tax saving instrument?

You will need 2 things:

1. PAN Card: The PAN Card copy needs to be attested by the proposed investor


2. Demat Account: You need a stock brokerage account (demat account) to be able to invest in these instruments. Applications without a demat account will not be accepted

How are these bonds taxed?

While these bonds allow you to get a tax deduction in the current tax year ending March 31, 2010, any interest income you earn on these bonds will be taxable in your hands as income from other sources.

No TDS will be adjusted for investors in these bonds, and it is your responsibility to declare the income from these bonds and pay taxes on the interest income.

Who should invest in these bonds?

These bonds make sense for anyone who wants an additional tax deduction. However, recognize that there is a minimum lock-in period of 5 years for these bonds, so you should be comfortable without having access to your this money for at least 5 years.

If you are young and capable of taking financial risks, then you might be better suited to put your money into higher yielding instruments such as equity mutual funds, because you have time on your side which allows you to compound your capital over a long period of time at rates higher than the 7.85% rate that these bonds offer.

However, if you are risk averse and also old, this deduction might be suitable for you, as long as you don't need access to the money during the lock-in period. These bonds can give you the stability of fixed returns and the safety of your capital.

Comments

Thanks for your comment

    

deepbhatt said : 15/10/2010	Nice article, can you please forward the best bonds as per past stats.
Manoj Kheterpal said : 15/10/2010	I want to invest please suggest me which fund is good for investment.
Brijesh said : 03/10/2010	Nice and Very Informative article. I want to buy these bonds of LIC. Can you please send me a detail list of these bonds...?
A N Rai said : 27/09/2010	I want to purchase infrastructure bond please apprise that wether I will get tax exemption for last financial year ie upto 31 Mar 2010.
Tsewang Rigzen said : 16/09/2010	i need usefull articles is LIC and i want to buy LIC bond plz contract me email.
Akhil Puri said : 15/09/2010	This is really very nice information by iTrust. I believe only a company like iTrust can provide such specific up to date information.
Rajiv said : 15/09/2010	Good article. I was looking for this information from quite some time now. Finally, i got it here. Thanks for that. But given the 5 yrs lock-in period i am not going to use it anyway.
Munesh said : 15/09/2010	Your most of the articles are very useful. I want to buy these bonds of LIC. Please contact me via Email. Thanks.
Tarachand Bansal said : 15/09/2010	Really informative article.
madhav said : 15/09/2010	Are these bonds now available in the market?