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REC Tax Free Bonds: A Great Chance To Earn Tax Free Interest Income


Rural Electrification Corporation (REC) plans to raise tax free bonds of Rs 300 crores, with an option to retain up to Rs 700 crores. Retail investors have an opportunity to earn interest up to 7.43% on these tax free bonds.The interest earned on these bonds is absolutely tax free in the hands of investors.


REC Tax Free Bonds: A Great Chance For Tax Free Interest Income
Details of the REC Tax Free Bond Issue

1) Rural Electrification Corporation Ltd is A Government of India Undertaking company.

2) Base Issue Size: Rs 300 Cr with an option to retain oversubscription upto 700 Crores.

3) Credit Ratings: AAA/Stable by CRISIL, AAA by ICRA and CARE, IND AAA/Stable by IRRPL.

4) Interest on these Bonds is Tax-Free, no TDS is applicable, Wealth Tax is not levied.

OptionsOption 1Option IIOption III
Tenor10 years15 years20 years
Interest PaymentAnnuallyAnnuallyAnnually
For retail investors7.14%7.34%7.43%
Face valueRs 1000Rs 1000Rs 1000
Minimum applicationRs 5000Rs 5000Rs 5000
Interest on refund5.00%5.00%5.00%

Who should subscribe to the REC Tax Free Bonds?

Banks are offering a maximum interest of around 8% on fixed deposits. In fact, the best interest you can get on a State Bank of India fixed deposit is just 7.55 per cent per annum. REC Tax Free Bonds is offering you an interest rate of 7.43%.

But, remember that interest income from any bank deposit has to be added to total income for the the purpose of payment of income tax. So, it is not tax free. Interest on the REC Tax free bonds is tax free.

So, if you are investor who is paying taxes and has substantial investments in fixed deposits, then it makes sense to invest in the REC Tax Free Bonds. The post tax yield for those in the 10, 20 and 30 per cent tax bracket is much higher in the REC Tax Free Bonds.

The bonds would also be listed on the exchanges, which would thus make them east to sell as well, if your wish to sell the same. However, these bonds are not very liquid and hence you cannot buy and sell large quantities.

Read more about: rec tax free bonds
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