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Tax Saving Infrastructure Bonds 2011 – Should you buy them?

Published On 07 Dec 2011 By . Under: Useful Tips. Tags:   

What are Tax Saving Infrastructure bonds?

The purpose behind infrastructure bonds 2011 in India is to meet the long-term needs of infrastructure development in India. The money raised through these bonds would be primarily invested in infrastructure projects – building of roads, ports, airports, power plants, etc. These investments are of long term duration, and therefore, the bonds too are expected to have long tenures – 5 to 10 years.

Also these bonds can be issued only by certain government and Reserve Bank of India (RBI)-approved entities.

Go directly to: Benefits of 80 ccf infrastructure bonds | Drawbacks of Infrastructure Bonds

What are the benefits of investing in tax saving infrastructure bonds?

One benefit of these long term infrastructure bonds is that it allows you to enjoy tax benefit upto a limit of Rs 20000 under Sec 80 CCF. This limit is over and above the 1 lakh limit provided under Section 80 C of Income Tax Act. In addition, these investments are comparatively safer than ones in Stock Market.

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Since only few companies with a credible reputation are being allowed to issue such bonds, it adds to the safety factor. However please note that government doest take any guarantee for the money invested in these bonds. The interest earned can vary from 7.5 to 9.5% depending upon the issuer and investment option chosen (Interest rate is more in case cumulative non buy back options than non cumulative ones).

Drawbacks of Long Term Infrastructure Bonds

However the pros in a way end here. These bonds do not suit appetite of all the investors. Consider you fall in the 10% tax bracket. In that case after investing a sum of Rs 20000 you end up getting a tax benefit of only Rs 2000. These bonds have a tenure of 5 to 10 years, so your money gets locked for a long period of time. In addition, the interest earned from these deposits is taxable, thereby further reducing the net interest rate of these bonds. Read analysis of infrastructure bonds for various tax brackets.

We recommend investment in these long term tax saving infrastructure bonds only if you are looking for safer investment options and willing to let your money get locked for longer durations.

Various long term infrastructure bonds are available in the market from time to time. Some of the popular ones are:

  • IDFC Long Term Infrastructure Bonds
  • L&T Infrastructure Bonds
  • REC Infrastructure Bonds
Useful Links:
Case Study on 80 ccf Infrastructure Bonds
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