Over the last few years, there have been many government owned companies that approached the markets to raise money through tax free bonds.

In 2014, there were no tax free bonds, though this year and early next year there are likely to be a deluge of them.

1) Indian Railway Finance Corporation

2) National Highways Authority of India

4) Rural Electrification Corporation of India

5) Power Finance Corporation

Apart from this there are a few other government owned companies that had offered tax free bonds in India.

What are these tax free bonds in India?

Tax free bonds means the interest from these bonds are exempted from income tax. Interest from most of the instruments, including bank deposits and some small saving schemes are not tax exempt. Interest on these have to be added to total income before determining tax liability. To understand what are tax free bonds click here

However, in the case of tax free bonds, the interest is completely tax free.

How to buy these tax free bonds in India?

In India, these tax free bonds are listed on the BSE and NSE. You can buy them just as you buy shares and NCDs on the markets. You can get all the details such as the current market price, interest on these bonds, the record date for payment of interest, the expiry date of these bonds by visiting www.nseindia.com.

For example, just click on the link above and in the stock quote just type HUDCO, you will get the list of all HUDCO Tax Free bonds.

Just click on the securities information and you would get details like:

1) Series

2) Interest rates

3) Face Value

4) Next interest payment date

5) Issue Date

6) Expiry date

7) Credit rating

So, you can check the current market price of the bonds and their interest rates. Accordingly, you can work out the yield and see whether you returns are superior to other fixed interest yielding instruments. In general tax free bonds are beneficial for those in the highest tax bracket.

It's very difficult for those in the 10 and 20 per cent tax bracket to get super returns. In any case it all depends on the price of these tax free bonds.

If there is a distress sale of bonds, considering that they are illiquid and somebody might need emergency money, you may end up getting a good rate and hence superior yield.

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