Tax Saving Infrastructure bonds 2010 details

Finally the wait is over to get accurate details of the Tax Saving Infrastructure bonds 2010 where you can get tax exemptions of amount Rs 20000 in financial year 2010-2011 under Section 80CCF.It is an additional to 1Lac exemption limit under Section 80C.

 

IDFC(Infrastructure Development Finance Company) has announced a public issue of long term infrastructure bonds to get the capital of up to Rs 3,400 crore.

What is the Maturity period of the Tax Saving Infrastructure bonds 2010?

10 years

What is the lock in period of the Tax Saving Infrastructure bonds 2010 investment?

5 years – means after 5 years, you can withdraw or sell it.

When does the subscription open and close for Tax Saving Infrastructure bonds 2010?

Start Date :  30 – 09-2010

End Date  : 18-10-2010 or earlier as changed by the IDFC board

Tax Saving Infrastructure bonds Structure: 

There are 4 variants in the bonds

Series#1 8%     payable annually.
Series#2 8%     compounded annually(Cumulative option)
Series#3 7.50% payable annually - Buyback option.
Series#4 7.50% compounded annually(Cumulative option) - Buyback option.

What is the buyback option?
You can sell infrastructure bonds to the issuing company(IDFC,LIC) after lock in period and get principal amount and interest earned till 5 years.

Should I buy using Series#1 or series#2?
Series#1 and Series#2 does not come with buyback option so you may not able to sell it off after lock in period on NSE or BSE. If you does not find buyer for your infrastructure bonds then you may have to hold till end of maturity period.

- Investor would need a demat account and pan card to invest in these bonds.

-The face value of the Tax Saving Infrastructure bonds is Rs. 5,000. 
-The bonds may be listed on NSE and BSE. 
-The bonds can not be traded during the lock in period of 1st 5 years. 
-These can be redeemed or brought back after 5 years any time on NSE or BSE.

- The Credit rating agency ICRA has rated the Tax Saving Infrastructure bonds 2010 = "LAAA" (highest safety) as it’s government of India initiatives and it’s 100% secure too.

Direct Tax code bill impact in Interest amount earned:

As proposed DTC bill and present tax rule, The interest earned on the infrastructure bonds will be taxable.

Example of Investment in Tax Saving Infrastructure bonds 2010:

So, I consider Rs. 20,000 is invested at 8% coupon (Series#2 C.A.) for lock in of 5 years for tax slab of 10%.

Your investment (A) =20,000

Your initial tax saving (B) = 2000

Your interest amount after 5 years at 8%(C) = 9386

If tax liability at 10% on interest after 5 years (D) = 938.
Now, Your effective returns (A+B+C-D) =30448.

Tax slab 20% = (20000+4000+9386-1876) = effective returns = 31510
Tax slab 30% = (20000+6000+9386-2814) = effective returns = 32572

So, please think and invest in Tax Saving Infrastructure bonds for FY 2010-2011. Don’t just apply for it because your friends are applying before approximate closing date of 18-OCT-2010.

Be informed investor and be aware about what you are investing.