Tax-saving infrastructure bonds are a good option in the fixed income category. These are issued by infrastructure companies approved by the government and they offer a decent rate of interest plus tax benefits.
Investment up to Rs 20,000 in these bonds is eligible for income tax deduction under Section 80 CCF of the Income-Tax Act. This is over and above the Rs 1,00,000 deduction available under Section 80C. These are long-term secured bonds which mature in 10-15 years.
IFCI Ltd and PFC recently closed their infra bond issues. A few others, such as LIC, Infrastructure Development Finance Company, L&T Infrastructure and India Infrastructure Finance Company, are getting ready to launch their issues.
WHO CAN APPLY
Hindu undivided families and any Indian resident who is not a minor can invest in these bonds. A person should ideally submit only one application. Multiple applications will be aggregated based on the permanent account number or PAN.
The tax benefit will be allowed only on investment up to Rs 20,000. The bonds can be held both in demat and physical forms.CAP, LOCK-IN
The minimum investment is Rs 5,000. There is no cap. However, income tax deduction is available only up to Rs 20,000. The bonds have a long maturity period of 10-15 years.
However, companies offer a buyback option, wherein the investor can surrender the bonds after five years without sacrificing his interest income. The bonds are listed on stock exchanges and can be traded after the five-year lock-in period.INTEREST
The issuers cannot pay more than the yield on government securities of same maturity. At present, 10-year government bonds are offering 8.5-9%. The interest is paid either annually or cumulatively.TAXATION
The interest earned is added to the income and taxed according to the investor's income tax bracket. No tax is deducted at source if the annual interest is less than Rs 2,500.
Since investment in these bonds offers
income tax deduction above the Rs 1,00,000 limit under Section 80 C, investors can opt for them if they have already exhausted the former limit.
"Investors can avail of additional tax benefits on investment up to Rs 20,000, and therefore, they must avail of this option," says Harish Sabharwal, chief operating officer, Bajaj Capital.