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IREDA Tax Free Bonds open on Feb 17: Should you subscribe?

IREDA Tax Free Bonds open on Feb 17: Should you subscribe?
The Indian Renewable Energy Development Agency (IREDA) will launch its tax free bonds on Feb 17, 2014. IREDA is a government owned entity and the bond Credit Ratings are as follows: AAA (SO) by CARE, BWR AAA (SO) Stable by Brickwork.

Interest on these Bonds are Tax-Free, so, no TDS is applicable and also Wealth Tax is not levied. Since the interest is tax free, interest income is not added to total income to determine income tax on these bonds.

Interest rates

The Bonds carry a coupon rate of 8.41 per cent for the 10 year bonds and 8.80 per cent for the 10 and 15 year bonds. These coupon rates are for retail investors.

For institutions and high networth individuals the interest rates are 8.16 per cent for 10 years and 8.55 per cent for 10 and 15 years.

Should you subscribe?

The bonds are relatively secure, since IREDA is a government of India enterprise. These Bonds are attractive for individuals in the 10, 20 and 30 per cent tax bracket, since yields from the bonds are better than most company and bank fixed deposits rates, after considering tax .

Those in the 10 per cent tax bracket can get a pre-tax yield of 9.78 per cent on the 15 and 20 year bond, while those in the 20 and 30 per cent tax bracket can get a yield of 11 per cent and 12.57 per cent on the 15 and 20 year tax free bonds.

Also, by investing for the long term, the bonds hedge against an interest rate decline. The bonds can be sold on the exchanges, if you do not wish to hold them till maturity. However, liquidity of the bonds is not too great.

Read more about: tax free bonds ireda
Story first published: Saturday, February 15, 2014, 9:56 [IST]
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