Saturday, December 17, 2011

All the information about 80ccf Infrastructure Bonds

The government had announced tax benefit on long term infrastructure bonds a couple of years back. Since there have been a number of infrastructure bond issues in the last month or so, we decided to write an article which gives all the details on infrastructure bonds.

Indian citizens can reduce taxable income by investing in certain instruments like life insurance, PPF, NSC, tax saving fixed deposits, or tax saving mutual funds, but the limit on the deduction from taxable income is Rs 100,000 under section 80c, 80ccc and 80ccd.

Section 80ccf allows Indian citizens to invest an additional Rs 20,000 in infrastructure bonds, and reduce the amount from taxable income in addition to the Rs 100,000 deduction mentioned above.

How much Tax an individual can save if coming under the highest tax bracket of 30%?
The Bonds provide an additional tax savings up to a maximum amount of Rs 6,180/- for investors coming under highest tax bracket.

What is the Tax Treatment of interest on these Bonds?
The interest received on these bonds shall be taxable on accrual basis. If one buys bonds worth Rs 20,000, then Rs1,800 will be added to taxable interest income every year till the time one hold these bonds. 

What is the lock-in period of these bonds?
After 5 years investor may exit either through the secondary market or through a buyback facility specified by the issuer in the issue document at the time of issue. There will be no tax on the principal part after 5 years.

Will one get the tax benefit every year, or just one year?
Individuals will get the tax benefit only in the first year, which means that if one buys 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.

Is there TDS on the interest?
No TDS shall be deducted on the interest received as these bonds.

Who are the eligible investors?
Only Resident Indian Individuals (Major) and HUF can invest in these bonds. NRIs cannot apply in these bonds.

Can a Minor apply for subscription to these bonds?
Minors are not allowed to invest in this Issue. So minor application even accompanied by Guardian is not acceptable.

Can one apply without an Demat account?
Yes, But it is dependent on issuer. Normally all issues have both options.

Can application have joint names?
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.      In case of joint application the interest shall be paid to the account of the first applicant only.

Who can offer these Long Term Infrastructure Bonds?
The entities like LlC, IDFC, IFCI, L&T and other NBFCs which are classified as Infrastructure Finance Companies by RBI shall be allowed to issue these long term infrastructure bonds.

Can one apply for subscription without PAN card?
PAN card is mandatory for subscribing to these bonds.

How will interest be paid on the due date?
The interest shall be credited to the respective Bank account registered with the Demat account through ECS on the due date for interest payment, and if the due date is a public holiday then the next working date.

Can one get loan on these bonds?
Individuals cannot avail of any loan pledging these bonds in the first 5 years. Thereafter, these bonds may be pledged to avail of loans.

Are Intercity clearing cheques acceptable?
No, cheques has to be payable at par or local clearing cheques are only allowed.

Which are the latest long term infrastructure bond issues?
IDFC, L&T and IFCI.


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