Are REC bonds taxable when they mature?
Interest on the NHAI and REC bonds is 5.75 percent per year, payable annually beginning April 1st. Under the heading “Income from Other Sources,” the interest collected on these bonds is completely taxed. The interest on these bonds would not be taxed at the source.
Which bonds are exempt from paying taxes?
Federal income from state, city, and local government bonds (municipal bonds, or munis) is normally tax-free. However, you must record this income when you file your taxes.
In most cases, municipal bond income is tax-free in the state where the bond was issued. However, take in mind the following:
- Occasionally, a state that normally taxes municipal bond interest would exempt special bonds when they are issued.
Municipal bond income may potentially be free from local taxes, depending on your state’s regulations. For further information on the rules in your state, see a tax advisor.
NHAI or REC: which bond is better?
REC bonds have a somewhat higher rating than NHAI bonds. Because NHAI bondholders must request for surrender of bonds at maturity, which is after 5 years, and only then is the maturity amount redeemed and paid by cheque or ECS. It will be automatically redeemed and paid by check or ECS in the case of REC bonds.
Is infrastructure bond interest taxable?
As a result, the tax-advantaged long-term infrastructure bonds were not really tax-free bonds.
The annual interest payout option and the cumulative interest option were both available to the investors.
While investors who chose annual interest distributions have already paid tax on the amount of interest received, those who chose the cumulative option would pay more tax in the year of investment than they saved in the year of investment.
Confusion over Tax-Saving vs. Tax-Paying Infrastructure Bonds
Taxpayers who take advantage of free bonds end up paying more in taxes than they receive in benefits.
Taxation
Because the interest on long-term infrastructure bonds is taxable, the interest earned by the investors annually for those who chose the annual option and aggregate on maturity for those who chose the cumulative option will be added to their taxable income.
As a result, tax payable will be lower for investors in lower tax bands and higher for those in higher tax brackets.
TDS
For Resident taxpayers who choose the cumulative option in physical format, the interest payment will be subject to a 10% Tax Deducted at Source (TDS) if the interest payment upon redemption exceeds Rs 5,000.
The TDS rate will increase to 20% if the bondholder does not have a valid PAN or if the investor has not submitted his tax returns for the last two years and the total TDS and TCS in each of those years is Rs 50,000 or higher.
TDS of 31.2 percent would be applied to interest payouts for non-resident taxpayers.
How to save TDS
Resident bondholders must submit Form 15G / 15H, as appropriate, to avoid TDS. Those who did not disclose their PAN data at the time of investment must update their PANs with the various RTAs within the time frames set by the bond issuers.
Non-Resident bondholders must submit a tax officer’s order under Section 197 / 195 setting NIL / lower TDS rates to the appropriate RTAs before the deadline to guarantee that TDS is collected at the rates provided in the order.
What interest income is exempt from taxation?
that specifies the exact amount of bank interest you got for your tax return Technically, there is no minimum amount of income that must be reported; nevertheless, any interest you earn must be disclosed on your tax return. Even if you don’t get a Form 1099-INT, you must declare all interest on your taxes. Because it may affect your tax return, any amount of tax-exempt interest must be disclosed on your income tax return.
How do I go about purchasing tax-free bonds?
These tax-free bonds are available in both physical and demat form to investors. The subscription period for tax-free bonds is open for a limited time, and you must purchase these bonds within that time frame. If the bonds are purchased in tangible form, the investor must provide his or her Permanent Account Number (PAN).
Where can I get tax-free NHAI bonds?
The latest primary issuance of tax-free bonds was by the Government of India in 2015, and there have been no additional issues since then.
As a result, investors are practically limited to purchasing these bonds only on the secondary market. As a result, they can be traded on the NSE/BSE.
Any retail investor with a current trading/Demat account can purchase the bond from the exchange like an equity stock, depending on availability.
- When a corporation distributes bonds to the general public, investors can apply online or offline to subscribe.
You’ll need to submit an updated application form, either online or offline, together with the necessary papers and a check or demand draft for the amount you want to invest.
More than 20 nationalized banks can assist you in purchasing these bonds.
You will receive the bond and the Certificate of Holding in your BLA (Bond Ledger Account) once you have invested.
- The stock market is where investors can buy and sell these bonds. However, while the interest on these bonds is tax-free, any capital gain from a secondary market sale is.
Short-term capital gains (STCGs) from the selling of tax-free bonds on exchanges are taxed at the regular rate.
Long-Term Capital Gains (LTCGs) are taxed at a rate of 10% without indexation (i.e. indexation is a mechanism employed by investors to avoid tax loss on investments) or 20% with indexation, whichever is lower.
In India, how can I avoid capital gains tax?
If you use your entire selling profits to purchase a home, you may be able to avoid paying any tax on your gains if you meet all of the following criteria.
- Purchase a home within a year of the transfer date or within two years of the transfer date.
- On the date of transfer, you should not own more than one residential house (other than the new one).
- You do not purchase or construct any residential house within two years of such date or within three years of such date (other than the new one).
You won’t have to pay any tax on your gains if you meet these requirements and spend the entire sale proceeds to buy a new home. If you invest a portion of the sale profits, the exemption will be proportional to the amount invested to the sale price or exemption, i.e. cost of new house x capital gains/net consideration.
Are IBM bonds exempt from taxes?
Municipal bond interest is normally tax-free. Interest is normally excluded from state tax if the bond was issued in the bondholder’s home state.