Friday, 27 January 2012

How to Select Infrastructure Bond ( U/s.80CCF ) Of Income Tax Act.


It is time to start working on your tax savings.... just few months away from March 31,2012.It is the time to execute some action.


Infrastructure bonds are gaining popularity as a tax saving instrument because of the recently introduced tax benefit under 80CCF. 

The investment made under such bonds are available for tax deduction under Section 80CCF which is over and above the Rs 1,00,000/- limit under Section 80C. An investor is free to invest for higher amounts; but the tax deduction is allowed only upto Rs 20,000/-.

As you know currently Six Infrastructure bonds issues are running on , like

( a ).  L & T Infrastructure Finance ( L & T )
( b ).  IFCI
( c ).  Infrastructure Development Finance Company Ltd ( IDFC )
( d ).  Rural Electrification Corporation Ltd ( REC )
( e ).  PFS
( f ).   SREI Infrastructure Finance ( SREI )

You can find Full details of above mentioned currently running Infrastructure Bonds on web site easily. So no need to discuss more......

Some Interesting points to remember , while investing in Infra Bond u/s.80 CCF Of IT Act.:

( 1 ). All Infra bond has lock-in Period of 5 Yrs., so can't get exit before 5 yrs.

( 2 ). Tax Adjusted Yield from the Infra bond depends on your income Tax bracket. Higher the tax bracket , greater will be the effective yield.

( 3 ). A Shorter holding period will fetch a higher yield. So it is better to tender the bonds for a buy-back , not hold them till maturity.

( 4 ). You will have to pay tax on interest received , because it will be added to your regular income.

( 5 ). Those who are in higher tax slab, always Select the Cumulative option , here Interest gets re-invested at the bond's coupon rate , also you will get Indexation benefit.

( 6 ). While investing in Infra bond , check the Credit Rating of Bond issuer company and it is advisable to select the " AAA " Credit Rating. It indicating high safety for timely servicing of debt obligations.

( 7 ). Investment in Infra bond , is One time investment and you get tax benefit in current year only. Next year if you want tax benefit you have to invest again.

( 8 ). The Infra Bonds are trade able on the stock exchange after completion of lock-In period i.e.5 Yrs.



( 9 ). The Interest on such bond shall not be Higher than the Yields prevailing for 10 year Government Of India Bonds ( G-Sec ) the time of issuance of such Infrastructure Bonds. 

( 10 ). Only the bonds which are in demat mode can be trade able on the stock exchange. If you apply in physical mode , then TDS will be deducted on the Interest which you will receive every year ( as per category ).

Benefit Of Demat : ( Securities Dematerialisation )

( a ). Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc. ( b ). Reduction in paperwork .    ( c ). Nomination facility.( d ). Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately.( e ). Holding investments in equity and debt instruments in a single account.( f ). Elimination of signature differ risk.


Hint :

For a 30% Tax bracket, I think its definitely worth investing in Infrastructure bond as post yield return comes to around 11-12%.

Unlike other categories, it does not make much sense for a person in the lowest tax category ( below Rs 5 lakh ) to invest into infra bonds. Five year lock-in and a small tax benefit is not a great incentive to go for it.

Till next time , Money Happy Returns.

Jigisha Nikhil Shah

Follow : www.facebook.com/shah.jigisha

Mobile No : +91 98796 85266











No comments:

Post a Comment