NTPC Tax Free Bonds: A Must Subscribe For Individuals In The Higher Tax Bracket

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    Tax Free Bonds for financial year 2015-16 kick-off with the NTPC Tax Free Bonds, which is to open today Sept 23, 2015.

    The bonds will offer an interest rate of up to 7.61 per cent for retail investors. The interest from tax free bonds as the name suggests is tax free.

    NTPC Tax Free Bonds: A Must Subscribe For Individuals In The Higher Tax Bracket
    What this means is that the interest income need not be added to total income for the purpose of determining income tax returns.
     

    Details of the NTPC Tax Free Bonds Are As Follows:

    Issued by: NTPC
    Open date: Sept 23
    Issue close date: Sept 30
    Credit Rating: AAA (Stable) by ICRA, AAA by CRISIL, and AAA by CARE
    Interest to be paid annually
    Face Value: Rs 1000 per bond.

    Options Series of Bonds
    For Category I, II & III
    Series 1 A Series 2 A Series 3 A
    Coupon rate (%) p.a. 7.11 7.28 7.37
    Annualised yield (%) p.a 7.11 7.28 7.37
    Options Series of Bonds
    For Category IV
    Series 1 B Series 2 B Series 3 B
    Coupon rate (%) p.a. 7.36 7.53 7.62
    Annualised yield (%) p.a 7.36 7.53 7.62
    For Category I, II, III and IV
    Tenor 10 years 15 years 20 years
    Redemption Date 10 years from Deemed Date of Allotment 15 years from Deemed Date of Allotment 20 years from Deemed Date of Allotment
    Modes of interest payment Through various available modes. Through various available modes. Through various available modes.
    Put option and call option None. None. None.

    As can be seen from the table, individual investors can get an interest rate of up to 7.62 per cent on these tax free bonds. They are also to be listed on the bourses, which means that you need not wait for these bonds to expiry say in 2035 and can sell the same in 2015 itself through the stock exchanges.

    Also read who should buy tax free bonds?

    Should you subscribe to the NTPC Tax Free bonds?

    Let's assume you are in the highest tax bracket. If you place a deposit in a government bank the maximum interest that you can get is 8 per cent. If you deduct the tax liability then your return would work out to 5.8 per cent if you are in the highest tax bracket and 6.4 per cent if you are in the 20 per cent tax bracket.

     

    In fact, if you are also in the lowest tax bracket the post tax returns on the NTPC Tax Free Bond are attractive.

    Hence, the tax free return from the NTPC Tax Free Bond of 7.6 per cent is far better. Also, the bonds are to be listed on the exchanges, which would make them liquid in case there is an emergency.

    Subscribe to them if you are prepared to hold onto them and avail tax free benefits. Please do remember, there is a capital gains that is applicable if you sell the shares after listing at a profit.

    Also read how to buy listed tax free bonds

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    Read more about: ntpc tax free bonds crisil
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