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Monday, 12 July 2010

Income Tax saving - Infrastructure Bonds

CBDT has notified New infrastructure Bonds u/s 80CCF.An Individual or HUF can invest in these new infrastructure Bonds upto Rs 20000/- in a Financial years.Main features of this new section and new notification is given below
  1. New section can be availed by individual or HUF only.
  2. 20000/- rs can be invested in a Financial year to avail deduction under section 80CCF
  3. 20000/- Limit is in addition to 100000/- Limit of setion 80C,80CCC,80CCD
  4. Tenure of the Bonds will be 10 Years.
  5. However Lock in period is 5 years ,after 5 years investor can withdraw money from the bonds
  6. After lock in period ,Investor can take loan against these Bonds  
  7. Issuer of the Bonds is LIC,IFCI,IDFC and other NBFC classified as infrastructure company.
  8. Permanent account Number is must to apply these bonds.
  9. Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond.

Section 80CCF of the Income-tax Act, 1961 – Deduction – In respect of subscription to long-term infrastructure bonds – Notified long-term infrastructure bond



Notification No. 48/2010[F.No.149/84/2010-SO(TPL)], dated 9-7-2010



In exercise of the powers conferred by section 80CCF of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies bonds, subject to the following conditions, as long-term infrastructure bonds for the purposes of the said section namely :-

(a) Name of the bond – The name of the bond shall be “Long-term Infrastructure Bond”.
(b) Issuer of the bond – The bond shall be issued by :-
(i) Industrial Finance Corporation of India;
(ii) Life Insurance Corporation of India;
(iii) Infrastructure Development Finance Company Limited;
(iv) a Non-Banking Finance Company classified as an Infrastructure Finance Company by the Reserve Bank of India;

(c) Limit on issuance – (i) The bond will be issued during financial year 2010-11;

(ii) the volume of issuance during the financial year shall be restricted to twenty-five per cent of the incremental infrastructure investments made by the issuer during the financial year 2009-10;

(iii) ‘Investment’ for the purposes of this limit include loans, bonds, other forms of debt, quasi-equity, preference equity and equity.

(d) Tenure of the bond. – (i) A minimum period of ten years:


(ii) the minimum lock-in period for an investor shall be five years:

(iii) after the lock in, the 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;

(iv) the bond shall also be allowed as pledge or lien or hypothecation for obtaining loans from Scheduled Commercial Banks, after the said lock-in period;

(e) Permanent Account Number (PAN) to be furnished – It shall be mandatory for the subscribers to furnish there PAN to the issuer;

(f) Yield of the bond – The yield of the bond shall not exceed the yield on government securities of corresponding residual maturity, as reported by the Fixed Income Money Market and Derivatives Association of India (FIMMDA), as on the last working day of the month immediately preceding the month of the issue of the bond;

(g) End-use of proceeds and reporting or monitoring mechanism – (i) The proceeds shall be utilizes towards ‘ infrastructure lending’ as defined by the Reserve Bank of India in the Guidelines : issued by it ;

(ii) the end-use shall be duly reported in the Annual Reports and other reports submitted by the issuer to the Regulatory Authority concerned, and specifically certified by the Statutory Auditor of the issuer;

(iii) the issuer shall also file these along with term sheets to the Infrastructure Division, Department of Economic Affairs, Ministry of Finance within three months from the end of financial year.

4 comments:

Lloyd said...

Dear Ashal,

Thanks for the detailed information, was very helpful. When will they hit the markets, Out of the above institutions which you think is safe to apply through.

Regards,
Lloyd

Asan Ideas for wealth said...

Dear Lloyd, As on date, merely the notification is there. More guidelines & the details from the issuers are awaited.

Thanks

Ashal

Sandesh Kamble said...

Dear Ashal,
I just came to know about IDFC Infra LT Bond with FV 5,000/-.
Please let me know whether we should go for this or wait for other bonds from LIC, IFCI for interest rates or some other options?
If we can go ahead with IDFC then let me know which option to choose from within 1 to 4.

- Sandesh

Asan Ideas for wealth said...

Dear Sandesh, If e person is in 30.9% Tax slab, investment in Infra bonds should be done for sure. For 20.6% slab it may be done & for 10.3% slab, it's not that much worth.

The reason is simple. For the max. possible investment of 20K under section 80CCF, the Tax saving is 2060 Rs. for 10.3% slab, 4120 Rs. for 20.6% & 6180 Rs. for 30.9% Tax slab. Where as maturity amount for all the 3 person is same i.e. 43180 Rs. for the 10Y bond with annual compounding (Option 2 in IDFC bond). So the effective yield for 30.9% slab comes out around 12.06%.

If you fall in 30.9%^ Tax slab, invest. IFCI issue is already over in the month of August. LIC & RSc etc. are in pipeline but over all the interest rate 'll not go up beyond 8% which is offered in IDFC bond. so you may opt to invest in this as your money 'll be available early redemption down the line.

Thanks

Ashal