The government introduced the scheme of infrastructure tax-saving bonds in 2010-11 in order to channelize the savings for development of infrastructure sector by providing additional tax exemption.

The decision has been taken with a view to attract long-term investments in infrastructure sector with certain limitations. "The volume of issuance during the financial year shall be restricted to 25% of the incremental infrastructure investments made by the issuer during 2010-11," the Finance Ministry said.

Apart from the above institutions, NBFCs classified as infrastructure finance company by RBI will also be able to issue these tax-saving bonds.

With this, one can invest up to Rs 20,000 under infrastructure bonds offered by these institutions to get tax benefits under section 80CCF. This is in addition to the Rs 1 lac limit available under Section 80C, 80CCC and Section 80CCD.

These bonds come with the maturities of 10-15 years and minimum lock-in of 5 years i.e. after the period of 5 years, the bonds will be listed on the recognized stock exchange or BSE, where bond holder would have an option to either sell it on the exchange or redeem it.

The coupon rate for the 10-year bond varies from 8-8.15% and the coupon rate for the bonds with higher maturity is slightly higher than these rates. One can choose to receive interest on an annual or a cumulative basis.

Thus, by investing 20,000, a person who is in the highest tax bracket of 30.9% can save up to Rs 6,180, while those in 20.6% tax bracket, can save up to Rs 4,120, and those in the 10.3% tax bracket, can save Rs 2,060.

Demerit: These bonds are locked in for a period of five years, so there is no exit in case you need the money in between.

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