Today I am Posting IRFC (Indan Railway Finance Corporation Ltd.), A Govt. Of India Enterprise - Tax free Bonds. The Issue is about to open on January 27, 2012. The common FAQs regarding the Issue which are commonly being asked by the investors. I have tried to give answer in easy and simple way.
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Salient
Features :
Ø The Income by way of interest on
these Bonds is fully exempted from Income Tax and shall not form part of Total
Income as per provision under section 10 (15) (iv) (h) of I.T. Act, 1961.
Ø Wealth Tax is not levied on
investment in Bond under section 2(ea) of the Wealth -tax Act, 1957
Ø Tax Free bonds are issued by
Government Owned Undertakings and carry high credit rating
Ø Bonds to be allotted on
first-cum-first serve basis up to the issue size of relevant tranches
Ø Bonds are likely to be issued either
in Demat form or physical form at the option of bondholders.
Ø Bonds are listed on the WDN
segment of the BSE and the NSE. and so, they will be traded, and
this will provide liquidity to the instrument in a transparent manner.
Ø No Limit on Investment
Ø IRFC Tax Free Bonds are a
lucrative option for investors in the 30% tax bracket. The return generated by
the bonds are much higher than bank deposit.
No banks are offering
11% interest rate neither for short or for such a long period.
Ø NRI’s can invest in bonds through Repatriable as well as Non - Repatriable basis.
IREC – Tax Free Bonds have 10 or 15 Yrs Maturity and offer
an average 8.00 to 8.10 % of interest ( 8.15 to 8.30% of Interest – With Some
Condition ). Pre tax yield on these bonds are close to 11 per cent. The coupon is attractive given the fact that it is tax free returns
and compares favorably than other current avenues, like bank or corporate
deposits
FAQs Of
IRFC
( 1 ) . What is the
Issue Size?
CBDT as vide its notification authorized us to raise tax
free bonds for total amount of up to Rs. 6300 crores in one or more tranches in the
financial year 2011-12.
( 2 ) . What is the
face value of these Bonds?
The Face Value per Bond is Rs. 1,000. Each bond is being
issued and shall be redeemed at par.
( 3 ). What is the
frequency of interest payment?
Interest on bonds is payable annually on
15 th October every year and on redemption date Tranche Prospectus(es) from, and including,
the Deemed Date of Allotment up to, but excluding their respective Maturity
Dates, payable on the "Interest Payment Dates" (to be specified in
the Tranche Prospectus(es)), to the Bondholders as of the relevant Record Date.
There is no cumulative option. The Annual Interest , which Bond Holder recived
can’t Reinvest in this bond.
( 4 ). What is the
minimum application amount and mode of payment to be payable on application?
The Bonds are being issued at par and full amount of face
value per Bond is payable on application. Eligible Applicants can apply for any amount of the Bonds subject to a
minimum application size of 10 Bonds
and in multiples of 5 Bonds thereafter,
across any of the Series(s) or a combination thereof.
( 5 ). Is there any
reservation for individual investor investing in this issue?
Yes. There is a reservation of 30 % for retail investors
(individuals and HUFs applying for an amount upto Rs. 5 lacs) and reservation
of 25 % for HNI investors (individuals and HUFs applying for an amount above
Rs. 5 lacs).
( 6 ) . Is Demat
account necessary to invest in these bonds?
No. The issuance shall be both in physical as well as in
dematerialized form at the option of the investors. However as per the SEBI
Debt Regulations, the trading of the
Bonds shall be compulsorily in dematerialised form.
( 7 ). Can the application be made on joint names?
Yes. Applications may be made in single or joint names
(not exceeding three). In the case of joint Applications, all refunds/
interests/ redemption amounts will be made out in favour of the first Applicant. All communications
will be addressed to the first named Applicant whose name appears in the
Application Form at the address mentioned therein. Names in the Application
Form should be identical to those appearing in the account details in the Depositories. In case
of joint holders, the names should necessarily be in the
same sequence as they appear in the account details in the
Depositories.
( 8 ). Which stock exchange are the bonds proposed
to be listed on?
The Bonds will be listed on both BSE and NSE. NSE shall be
the designated stock exchange.
( 9 ). What is the
interest on application money on allotted amount?
Issuer shall pay interest on the amount for which Bonds
are allotted to the Applicants subject to 108 deduction of income tax under the
provisions of the Income Tax Act, 1961, as amended, from the date of
realization of the cheque(s)/demand draft(s) or 3 (three) days from the date of banking of the
application (being the date of submission of each application as duly
acknowledged by the Bankers to the Issue) whichever is later upto one day prior
to the Deemed Date of Allotment, at the rate of
8% per annum.
( 10 ). What is the
interest on application money which is liable to be refunded?
Issuer shall pay interest on application money which is liable
to be refunded to the Applicants in accordance with the provisions of the SEBI
Debt Regulations, or other applicable statutory and/or regulatory requirements,
subject to deduction of income tax under the provisions of the Income Tax Act,
1961, as amended, as applicable, from the date of realization of the
cheque(s)/demand draft(s) or 3 (three) days from the date of receipt of the application (being the date of
presentation of each application as acknowledged by the Bankers to the Issue)
whichever is later upto one day prior to the Deemed Date of Allotment, at the
rate of 4% per annum.
( 11 ). What are the
tenors of these bonds?
The tenor for these Bonds will be 10 years and 15 Years
( 12 ). Can an
applicant trade the bonds in the market?
Yes. The Bonds will be listed on both BSE and NSE. The
trading of the Bonds shall be in dematerialised form only.
( 13 ). Who is not
eligible to invest in the issue?
Applications cannot be made by:
( 1 ). Minors without a guardian name;
( 2 ). Foreign nationals;
( 3 ). Persons resident outside India other than NRIs; and
( 4 ). Overseas Corporate Bodies
( 14 ). Can a Minor apply to these
bonds?
Yes, a
minor can apply for these bonds, but only through a guardian.
( 15 ). what is the
basis of allotment?
The basis of allotment of allotment is on first come first
Serve basis. If there is any under subscription in any Portion, priority in
allotments will be given in the following order:
[ I ]. Category III
Portion
[ ii ]. Category II
Portion
[ iii ]. Category I Portion
In case of an oversubscription, allotments to the maximum
extent, as possible, will be made on a first-come first-serve basis and
thereafter on proportionate basis, i.e. full allotment of Bonds to the
applicants on a first come first basis up to the date falling 1 (one) day prior
to the date of oversubscription and proportionate allotment of Bonds to the
applicants on the date of oversubscription (based on the date of submission of
each application to the Bankers to the Issue, in each Portion).
( 16 ). Can an
applicant make additional / multiple applications?
An Applicant may make multiple applications for the total
number of Bonds required and the same shall be considered valid. For the
purposes of allotment of Bonds under the Issue, applications shall be grouped
based on the PAN, i.e. applications under the same PAN shall be grouped
together.
Two or more applications will be deemed to be multiple
applications if the sole or first applicant is one and the same. For the sake
of clarity, two or more applications shall be deemed to be a multiple
application for the aforesaid purpose if the PAN number of the sole or the
first applicant is one and the same.
( 17 ). Who will get the interest
in case of joint application?
In case
of joint application, interest will be accounted to the first holder only.
( 18 ). What is the
tax treatment of these bonds?
The interest on these bonds shall not be included while
computing the Total Income of an assessee as per provisions of section
10(15)(iv)(h) of the Income Tax Act, 1961.Interest from bonds will be exempt
from income tax Since the interest income on these bonds is exempt, no Tax
Deduction at Source (TDS) is required
Under section 2 (29A) of the I.T. Act, read with section 2 (42A) of the I.T.
Act, 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.
Under section 112 of the I.T. Act, capital gains arising
on the transfer of long term capital assets being listed securities are subject
to tax at the rate of 20% of capital gains calculated after reducing indexed
cost of acquisition or 10% of capital gains without indexation of the cost of
acquisition
Wealth-tax is not levied on investment in bond under
section 2(ea) of the Wealth-tax Act, 1957.
Please note that the sum invested in these
bonds is not eligible for any deduction under section 80C, 80CCF or 54EC.
The Bond Holder is advised to consider in his own case the
tax implications in respect of subscription to the Bond after consulting his
tax advisor as alternate views are possible interpretation of provisions where
under the contents of his statement of tax benefit is formulated may be
considered differently by income tax authority, government, tribunals or court.
We are not liable to the Bond Holder in any manner for placing reliance upon
the contents of this statement of tax benefits.
( 19 ). Is there TDS on the Annual Interest?
There will be No
deduction of tax at source ( TDS ) from the interest, which accrues to
the bondholders in these bonds irrespective of the amount of the interest or
the status of the investors.
( 20 ). What is Tax
Free : Is the Principal Tax Free or the Interest Tax Free ?
This is not like the 80CCF infrastructure bonds that are
open right now so don’t confuse these bonds with them. This is truly tax free
in the sense that the interest you receive from these bonds will not be taxed.
The infrastructure bonds ( U/s.80 CCCF ) are called tax
saving bonds but are not tax free. They save tax because when you invest in
them then you can reduce the amount of investment (up to a maximum of Rs.
20,000) from your income and lower your tax incidence. But the interest income
on them is taxable, so they are not tax free.
As far as the principal being tax free is concerned – the
principal is always tax free. That’s your money anyway and tax is charged only
on the income by the way of interest or capital gains.
( 21 ). I don't have a PAN
card. Can I still apply for subscription?
Income Tax PAN card is mandatory for subscribing to these
bonds.
( 22 ). Can I
appoint Nominee’s name in Bond Certificate ?
Yes. You can appoint NRI or resident Nominee in the Bond Certificate.
( 23 ). Is there Loan / Lien Facility is available ?
Yes. Loan can be availed against bonds and a lien / charge can be created.
( 24 ). What is
Credit Rating of theses Bond ?
“ CRISIL LAAA/stable
" By Crisil ; “ ICRA AAA “ By Icra ; “ CARE AAA “ By Care.
( 25 ). Does this bond carry buyback options?
No.
Neither “Put Option ” shall be available
to the Bondholder(s), nor would “Call
Option ”be available to the Company to redeem the Bonds prior to maturity
( 26 ). What is the Full Name Of IRFC ?
IREC : Indian Railway Finance Corporation
Ltd , An Autonomous Body under the Ministry
of Railways , Government of India.
( 27 ). In whose favour the Cheque is to be made
? ( Payment
Instruction )
( a ). Cheques has to be made in
the favour of “IRFC Tax Free Bonds - Escrow Account –
Tranche - I” For Non-NRI And Non-FII applicants.
( b ). Cheques has to be made in
the favour of “IRFC Tax Free Bonds - NRI Escrow Account –
Tranche - I” For NRI applicants.
( c ). Cheques has to be made in
the favour of “IRFC Tax Free Bonds - FII Escrow Account – Tranche - I”
For FII applicants.
Any other questions ?
I've tried to cover all questions that I see pop up frequently , but if you have any other questions feel free to leave a comment , and I will try to answer them.
Till next time , Money Happy Returns.
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