List Of Tax-Free Bonds To Be Launched In 2015-16

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In the Union Budget 2015-16, Finance Minister, Arun Jaitley announced unveiling of tax-free infra bonds for railways and roads.

Tax-free bonds are bonds whose interest income are not taxable in the hand of the investors. In effect this means that the income from these bonds are tax-free and hence do not form part of the total income in computing income tax.

All About Tax-Free Bonds To Be Launched In 2015-16

List of latest upcoming bonds in 2015

NoCompaniesAmount in Crores
1National Highways Authority of India (NHAI)Rs 24000
2Indian Railways Finance Corporation (IRFC)Rs 6000
3Housing and Urban Development Corporation (HUDCO)Rs 5000
4Indian Renewable Energy Development Agency (IREDA)Rs 2000
5Power Finance Corporation Limited (PFC)Rs 1000
6Rural Electrification Corporation Limited (REC)Rs 1000
7NTPC LimitedRs 1000

Who can buy these Tax-free bonds?

  • Retail Individual Investors (RIIs) 
  • Qualified Institutional Buyers (QIBs); 
  • Corporates (including statutory corporations), trusts, partnership firms, Limited Liability Partnerships, co-operative banks, regional rural and other legal entities, subject to compliance with their respect Acts and 
  • High Net worth Individuals (HNIs). 

Note that subscriber for the bonds should mandatorily furnish the Permanent Account Number (PAN) to the issuer of the bond.

Interest Rate on Tax-free bonds

There shall be a ceiling on the coupon rates based Government security (G-sec) rate.

  • AAA rated companies will offer less fifty-five basis points for retail investor compared to similar maturity G-Sec yields.
  • AA+ rating bonds will provide the interest rate of 10 basis points above the interest rate offered by AAA rated issuer or 45 basis points lower than G-Sec yield.
  • A or -AA bonds ratings will have an interest rate above 20 basis points offered by AAA rated bonds or 35 basis points lower than G-Sec yield.

Tax-free bonds interest is credited annually directly to the bank account of the investor.

While, the same higher rates are not applicable to a non retail investor if transferred from retail investors.

Tenure of the Bonds

Tenure of the bonds will be for ten or fifteen or twenty years.

Taxation on Tax-free Bonds

Tax-free bonds do not fall under 80C Income Tax Act, which means any amount invested will not be eligible for tax deductions.

No Tax is Deducted at Source as in any case the interest income is tax-free.

However, buying or selling the secondary market will attract capital gains tax depending on the holding of the tax-free bonds.

How to Buy Tax-Free Bonds?

You can buy tax-free bonds from your trading account, just as you buy shares. You can either call your broker and place an order or you can buy it yourself if you are trading online. Read more on how to buy tax free bonds.

Conclusion

Individuals who are planning to invest in tax-free bonds should be aware that liquidity is not high when compared to other debt instruments.

Individuals falling in higher tax bracket can be benefited by investing in tax-free bonds.

GoodReturns.in

Story first published: Friday, July 17, 2015, 11:35 [IST]
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