Infrastructure Bonds are back as they allow you to claim extra 20000 as Deductible from your Income. But, are they worth it??
As you are aware, the Finance Minister in the recent budget has announced a special Income Tax rebate, wherein investment made upto Rs.20,000/- in Bonds issued by Infrastructure Companies will be eligible for Income Tax benefit u/s 80-CCF.
Following this, IDFC, L&T had earlier come out with Infrastructure Bonds and now IFCI too has come with a public issue of such Tax Saving Bonds.
On an investment of Rs.20k, an individual in the Top Tax Bracket of 30% can make a saving of Rs.6000 and also earn an interest of 85 to 8.25%. However, for the Highest Bracket Tax Payer, the effective yield works out to 14.25%…..
These Bonds typically have a minimum tenure of 10 years and will be locked for 5 years. Since, the Bonds are expected to be listed on the Stock Markets, liquidity concerns are negated to some extent.
Those Tax payers who have exhausted their Exemption for Investments of Rs.1 lakhs in Sec 80c, 80ccc, 80ccd can look at these Infra Bonds.
HOW MUCH TO INVEST?
Even though there is no upper limit for investing in these bonds, since a maximum of Rs.20000 is deductible from your Taxable income, do NOT invest more than Rs.20000 in these Bonds.
Features of the present IFCI Bond open for subscription :
Face Value Rs. 5,000/- per bond
Issue Price At par (Rs. 5,000/- per bond)
Minimum Subscription 1 Bond and in multiples of 1 Bond thereafter,
Tenure 10 years, with or without buyback option after five years
Options for Subscription The Bonds are offered under the following 4 options-
• Option I – Non-cumulative and Buyback after 5 years
• Option II – Cumulative and Buyback after 5 years
• Option III – Non-cumulative and no Buyback
• Option IV – Cumulative and no Buyback
Redemption / Maturity At par at the end of 10 years from the deemed date of allotment. For Cumulative Option, at par with cumulated interest thereon.
Coupon rate • Option I & II – 8% p.a.
• Option III & IV – 8.25% p.a.
Option II and Option IV will have cumulative payment at the end of the Buyback period or 10 years, as per the option opted by the Investor.
Rating : BWR AA- by BRICKWORK RATINGS INDIA PVT LIMITED implying these Bonds carry high credit quality
Listing Proposed to be listed on BSE
Interest from IFCI BONDS are not subjected to TDS , but it is TAXABLE at the hands of investors.
The IFCI bonds are issued with section 80CCF benefits which means that they will get you a tax benefit of reducing your taxable income over and above the Rs. 100,000 under Section 80C with a cap of Rs.20,000.
These IFCI 80CCF bonds will not attract TDS, however the interest itself is taxable at your hands. So, the bonds don’t attract TDS, but it doesn’t mean they are tax free.
LET ME ALSO CLARIFY....
If you have already bought another infrastructure bond, and exhausted the limit of Rs. 20,000 then you won’t get any further tax benefit by buying this bond. There are also several banks that offer 8% interest for terms less than 5 years, so you won’t get much value out of locking your money in this instrument for 5 years.
ONE MORE IMPORTANT NOTE.....
LIC is also expected to come out with its Infra Bonds...
This bonds from LIC is expected to not only give MORE interest but also OFFER FREE TERM INSURANCE.
So, you can wait for some more time...
Srikanth Matrubai is known as the WEALTH ARCHITECT. He is practitioner of Wealthy Habits and author of Amazon Best Selling Book DON'T RETIRE RICH. We strongly urge to follow your Advisor. This blog is purely for information. However, we strongly suggest you to consult a Financial adviser. This blog is purely for information purposes only and we do not take any responsibility whatsoever as the blog content may be changed from time to time and is generic in nature.
Friday, January 7, 2011
IFCI INFRA BONDS.... SHOULD YOU INVEST??
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