Section 80CCF Infrastructure Bonds FAQ
By Jigisha Nikhil Shah
Me and my Husband always wanted to share our experiences and views about the financial matters , and this blog has given us the platform to spread our knowledge to the millions of the friends who actually want to know and make clear the confusion for the Financial Investments.
During this month I've received lot of questions on section 80CCF Infrastructure bonds. Here i am going to address some common questions about sec.80CCF Of Income Tax Act with this post.
[ 1 ]. Who are the eligible Investors ?
Indian nationals resident in India,
who are not minors, in single or joint names ( not more than three), and Hindu Undivided Families or HUFs,
in the individual name of the Karta.
[ 2 ]. Can a Minor apply for subscription to these Bonds ?
A minor is not eligible
to apply for subscription to these bonds.
[ 3 ]. 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.
[ 4 ]. Are these Infrastructure Bonds Tax Free ?
No, the interest
received in these bonds is not tax free. The investor is liable to pay tax on
the interest received. The investment up to Rs. 20,000 made will be eligible
for tax benefits in the year of investment under Section 80 CCF of the Income
Tax Act, 1961.
[ 5 ]. Will TDS be Deducted on these
Bonds ?
No TDS shall be
deducted on interest with respect to bonds issued in Demat mode. TDS will apply
with respect to bonds issued to investors in physical form.
[ 6 ]. What are the prime objectives of the Bond Issue ?
The
funds raised through the issue will be utilized towards “infrastructure
lending” as defined by RBI in the regulations issued by it from time to time,
after meeting the expenditures of, and related to, the Issue.
[ 7 ]. What will be tax implication in case of transfer of Bonds before
maturity ?
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 10% of capital gains calculated without indexation of the cost of
acquisition. The capital gains will be computed by deducting expenditure incurred
in connection with such transfer and cost of acquisition of the Bond from the
sale consideration.
In case of an individual or HUF, being a resident, where the total income as
reduced by the long term capital gains is below the maximum amount not chargeable
to tax i.e. Rs 1,80,000 in case of all individuals , Rs 1,90,000 in case of women , Rs 2,50,000 in case of senior citizens And Rs.5,00,000 in case of Very senior citizens, the long term capital gains shall be
reduced by the amount by which the total income as so reduced falls short of
the maximum amount which is not chargeable to income-tax and the tax on the
balance of such long-term capital gains shall be computed at the rate of 10% in
accordance with and the proviso to sub-section (1) of section 112 of the I.T.
Act read with CBDT Circular 721 dated September 13, 1995.
A 2% education cess and 1% secondary and higher education cess on the total
income tax (including surcharge applicable if any) is payable by all categories
of tax payers.
Short-term capital gains on the transfer of listed Bonds, where Bonds are held
for a period of not more than 12 months would be taxed at the normal rates of
tax in accordance with and subject to the provisions of the I.T. Act.
The provisions related to minimum amount not chargeable to tax, education cess
and secondary and higher education cess described at Para 4(a) above would also
apply to such short-term capital gains.
In case the Bonds are held as stock in trade, the income on transfer of Bonds
would be taxed as business income or loss in accordance with and subject to the
provisions of the I.T. Act.
[ 8 ]. Is
there any ceiling on investments for obtaining tax benefits ?
In
accordance with Section 80CCF of the Income Tax Act, the amount, not exceeding
Rs. 20,000 per annum, paid or deposited as subscription to Long Term
Infrastructure Bonds during the previous year relevant to the assessment year
beginning April 01, 2011 shall be deducted in computing the taxable income of a
Resident Individual or HUF.
In the
event that any applicant applies for and is allotted Long Term Infrastructure
Bonds in excess of Rs. 20,000 per annum (including Long Term Infrastructure
Bonds issued by any other eligible issuer), the afore stated tax benefit shall
be available to such applicant only to the extent of Rs. 20,000 per annum. Subscription
to additional Bonds will not be eligible for deduction in taxable income.
[ 9 ]. Can
a person investing in the Bond Issue get loans against it ?
The
Bonds cannot be pledged or hypothecated for obtaining loans from scheduled
commercial banks during the lock-in Period ( 5 Years ). Thereafter, these bonds
may be pledged to avail loan
The Company shall have the right of set-off and lien, present as well as future
on the money due and payable to the Bondholder or deposits held in the account
of the Bondholder, whether in single name or joint name, to the extent of all
outstanding dues by the Bondholder to the Company.
The Company, at its discretion, may note a lien or pledge of Bonds if such
pledge of Bond is accepted by any bank or institution for any loan provided to
the Bondholder against pledge of such Bonds as part of the funding subject to
applicable laws.
[ 10 ]. I don’t have Demat Account. Can I Apply ?
Yes, Investors who do
not have any Demat Account can apply for the bonds in physical form. Additional
requirements for applying in physical form are given in the Annexure.
Please note In terms of Regulation 4(2)(d) of
the SEBI (Issue and Listing of Debt Securities) Regulations, 2008, the Company
will make public issue of the Tranche 1 Bonds in the dematerialized form.
However, in terms of Section 8 (1) of the Depositories Act, 1996, the Company,
at the request of the Applicants who wish to hold the Tranche 1 Bonds in
physical form, will fulfill such request
[ 11 ]. I only have a joint Demat 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.
[ 12 ]. 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. In case of application made in joint
names, the tax benefit shall only be availed by the first applicant.
[ 13 ]. What is the Maximum amount for which the benefit u/s.80 CCF be
availed ?
Maximum benefit to
investor shall be Rs. 20,000/-- under section 80CCF of the Income Tax Act,
1961.
[ 14 ]. What would happen if apply amount more than Rs.20,000 ?
The allotment shall be
made as per the Basis of Allotment, However, the benefit under section 80CCF of
the Income Tax Act, 1961, of the Income Tax Act may only be availed for a
maximum sum of Rs. 20,000.
[ 15 ]. Can I invest in both the options ?
Yes an applicant may
subscribe in both the options. For the purpose of fulfilling the requirement of
minimum subscription, an applicant may choose to apply for five Tranche 1 Bonds
of the same series or across different series.
[ 16 ]. What is the benefit of investing in Tax Savings Infrastructure
Bonds if they offer the same tax benefit ?
The Tax exemption
benefit under Sec 80CCF on a sum of Rs. 20,000/- is over and above
Rs.1,00,000/- benefit under section 80C, 80CCC and 80CCD.
[ 17 ]. What is the tenure & lock-in period of these Infrastructure
Bonds ?
The Tenure of bonds
under both the series shall be 10 years or 15 Years and bonds shall be
locked-in of 5 years.
[ 18 ]. Who can offer these Long Term Infrastructure Bonds ?
The entities like LlC,
IDFC, IFCI, and other NBFCs which are classified as Infrastructure Finance
Companies by RBI shall be allowed to issue these long term infrastructure
bonds.
[ 19 ]. I Don’t have a Income Tax PAN Card. Can I still apply for
subscription ?
PAN card is mandatory
for subscribing to these bonds.
[ 20 ]. How will I get my Interest on the Due Date ?
The interest shall be
credited to the respective Bank account registered with the Demat account and
for the bond held in physical form in the bank account indicated in a
self-attested copy of the cancelled cheque attached with the form as mentioned
in Annexure I through ECS on the due date for interest payment, and if the due
date is a public holiday then the next working date.
[ 21 ]. What is the Interest On Application Money & Interest On
Refund ?
The Infra Bond – Issuer
company shall or shall not pay any interest on application money and interest
on refund of Application Amount, in whole or part.
[ 22 ]. Where shall I submit the application Form ?
All Application Forms
duly completed together with cheque/demand draft for the amount payable on
application must be delivered before the closing of the Issue to any of the
Bankers to the Issue or collection centre(s)/agent(s) as may be specified
before the closure of the Issue.
[ 23 ]. Who shall pay the interest and repay the principal amount ?
Infra Bond – issuer
company 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. The bonds
have been assigned credit rating as CARE AA+ by CARE & [ICRA] AA+ by ICRA
which are considered to offer high safety for timely servicing of financial
obligations.
[ 24 ]. 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.
[ 25 ]. Is it OK to submit Photocopy of all the 3 documents mentioned in
the Annexure ?
As long as the
documents are self attested, the photocopy all these documents can be submitted
with the application form.
[ 26 ]. Mode Of Holding can be Either Or Survivor ?
When the bonds are held
in joint names and one of the joint holders dies, the survivor(s) will be
recognized as the Bondholder(s).
[ 27 ]. Will there be TDS in Physical Form ? ( As per General
Instruction 12 , to avail TDS Investor can Submit 15G / 15H ) ?
In case the bonds are
held in physical form, no TDS is applicable as long as the interest
received does not exceed Rs. 2500 per year. However such interest is taxable
income in the hands of resident bondholder. If the interest exceeds Rs. 2500,
to ensure non-deduction of tax as source the bondholder are required to furnish
either (a) declaration [in duplicate] in the prescribed form i.e Form 15G. In
case of Senior citizens it should be 15H.
[ 28 ]. Nomination process in case opted for physical ?
Infra Bond – Issuer
company would provide the investors holding the bonds in physical form,
nomination facility at the time of sending the bond certificates.
[ 29 ]. Is it Necessary to provide the identify and address proof in
case of second and third holders ?
The address and
identity proof must be provided for all the joint holders of the bonds. The
cheque details would be required only for the account in which the payments
need to be credited.
[ 30 ]. Can I accept NRI Application ?
Non-resident investors
including NRIs, FIIs and OCBs are not eligible to participate in the Issue.
[ 31 ]. Will the NCDs to be traded on the stock exchange ?
NCDs will be listed on
BSE or NSE for trading. Trading will commence post completion of the lock in
period ( After 5 Yrs ).
[ 32 ]. Under Cumulative Option , when I get the Interest amount ?
Under cumulative
option, Interest will be paid at the end of 5 years or 10 Years if buyback
option is exercised or at the time of maturity.
[ 33 ]. Will I get the tax benefit every year, or
just one year?
You will get the tax benefit only in the first year, which
means that if you buy bonds worth Rs. 20,000 in this year – Rs. 20,000 will be
deducted from your taxable income while calculating tax this year. There is no
tax benefit from next year onwards.
[ 34 ]. I have a tax liability
of Rs. 12,000 – will that become zero if I buy bonds worth Rs. 12,000?
No, that’s not how they work. Buying the bonds will not
lead to a reduction in the tax paid by reducing that amount from your tax
burden. The benefit comes from reducing your taxable salary by the amount of
your investment, so that the final tax burden is reduced.
[ 35 ]. I missed the existing issues, will there be
new infrastructure bond issues?
Yes, there are going to be more 80CCF infrastructure bond
issues in the future, and if you missed the earlier ones, there is still a
chance to get these bonds.
For Views , Here I am posting Tax Saving Infrastructure Bonds U/s.80CCF Of Income Tax Act - Calendar 2011-2012.
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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