An investor should keep in mind that there are a few basic requirements that must be completed in order to reap the full benefits of Section 80CCF. Some of the basic eligibility conditions for taxpayers are shown here.
- Only residents of India are eligible to collect tax benefits under Section 80CCF. Deductions are not available to NRIs or foreigners.
- Individuals – This provision is exclusively available to individuals, not to businesses, enterprises, organizations, or associations.
Only Hindu Undivided Families, in addition to individual taxpayers, are eligible for deductions under Section 80CCF.
- Joint Investment – A joint investment can be formed in the names of two or more people, but only one person, the major stakeholder, can benefit from the tax benefits.
- Bond type Tax benefits under Section 80CCF can only be obtained by investing in specific tax-saving bonds issued by banks or firms after obtaining government approval.
- The maximum deduction under Section 80CCF is Rs 20,000, and investments in excess of this amount are taxed.
- Minors – Investments cannot be made in the name of a minor; only adult taxpayers are eligible for investment deductions.
Individuals who desire to claim Section 80CCF benefits must provide the following papers.
How can I go about purchasing infrastructure bonds?
If you have a demat account, you can apply to invest in an infrastructure bond online. You must complete an online application form.
These relationships can be applied for in a physical form. You’ll need a PAN card that has been self-attested. As part of the KYC (Know Your Customer) procedure, you must provide proof of identity and address.
After the lock-in period has expired, these bonds can be exchanged on stock exchanges like stocks.
Is the 80CCF still in effect?
Section 80CCF of the Income Tax Act allows only Indian residents to claim tax benefits. It does not apply to non-resident Indians or foreigners. Tax benefits can only be obtained by investing in specific tax-saving bonds issued by government-approved banks or enterprises.
What is the best infrastructure bond?
IFCI is the one that pays the most interest out of all of them. IFCI pays 9.09 percent over a ten-year period, REC 8.95 percent, PTC India Financial 8.93 percent, and SREI Infra Finance 8.9 percent. IFCI pays 9.16 percent for a 15-year term, while everyone else pays 9.15 percent.
What is the procedure for purchasing NHAI tax-free bonds?
These Capital Gain bonds can be purchased directly the NHAI/REC or from registered bond dealers. There is no way to buy these bonds online, so you’ll have to go to their office and fill out a paper form.
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.
How much does infrastructure bond interest cost?
The majority of recently issued infrastructure bonds have a coupon (interest rate) of 7.5 percent to 8.25 percent. The IFCI’s second series of bonds, which were just completed, carried a coupon of 8% with a five-year repurchase option and 8.25 percent with no buyback option.
Which investment is the best for senior citizens?
It is one of the most popular and well-liked retirement plans in India. It’s a good scheme for retirees because it provides security and a steady income with no risk. In addition, the 7.4 percent annual interest rate it gives is among the best in the industry. This position can only be held for a maximum of 5 years. The scheme is supported by the Government of India (GOI), making it a secure place to put your money. The GOI first implemented it in August 2004, with senior citizens at the forefront.
In India, which infrastructure bonds are the best?
Mr. Piyush Goyal, India’s Finance Minister, recently estimated that upgrading India’s infrastructure to Asian standards will cost close to $4.5 trillion over the next ten years. Countries such as China have spent trillions of dollars building roads, motorways, airports, canals, and other infrastructure, which has aided China’s growth over the last 30 years. Poor infrastructure has a significant impact on economic growth, and it is projected that if India could improve its infrastructure to Asian standards, its annual GDP rate would increase by 2% each year. It goes without saying that this is a lot of increase from a base of $2.6 trillion.
The creation of credible infrastructure funding mechanisms is one of the major issues in infrastructure development. To finance infrastructure, this necessitates strong debt markets and a variety of innovative loan structures. In the current environment, the government does offer the option of issuing special infrastructure bonds with tax benefits to entice investors. So, what are tax-advantaged infrastructure bonds, and what are the advantages of investing in them? Above all, what are the requirements for investing in infrastructure bonds? Let’s take a look at the three main types of infrastructure bonds that are now available.
These are one of the most common types of bonds for infrastructure funding. These tax-free bonds can be issued by companies involved in infrastructure development in India. Typically, organisations such as the Rural Electrification Corporation (REC), the National Highways Authority of India (NHAI), and the Indian Railway Finance Corporation (IRFC) are allowed to issue tax-free infrastructure bonds. In the case of these bonds, the interest paid on the bonds is completely tax-free in the investor’s hands. It effectively boosts your after-tax income. For example, if a tax-free bond pays 7% interest, the actual yield on the bond after subtracting the 30.9 percent tax is
10% of the population. That’s a lot better than anything a bank can offer you in terms of a savings account. Further than the tax exemption on interest payments, these bonds have no other tax advantages. However, because such bonds have a long lock-in term, you should expect illiquidity.
Another type of bond issued by infrastructure businesses is this one. These bonds are capital gains exemption bonds, which allow you to reinvest long-term capital gains. Assume you purchased a home in January 2011 and sold it in May 2018, earning a profit of Rs.40 lakhs. After taking into account the impact of indexation, long-term profits will now be taxed at 20%. Is it possible to avoid paying capital gains tax? The idea is to reinvest the capital profits in infrastructure businesses like REC and NHAI’s Section 54EC bonds. When you reinvest your property’s capital gains in these Section 54EC Capital Gains bonds, your gains are completely tax-free. The only stipulation is that you must invest the capital gains within six months of the date of the capital asset transfer to qualify for this exemption. Apart from the normal interest, you will benefit from the tax savings on capital gains with these Section 54EC bonds. These bonds typically have a coupon interest rate of 6% and a three-year lock-in period. Please keep in mind that the interest you earn on these bonds is fully taxable in your possession.
In the past, infrastructure bonds were also eligible for Section 80C tax breaks, but the advantage was phased out roughly 5 years ago. The Finance Minister reintroduced the infrastructure bond exemption in the Union Budget 2018 with a new section dubbed Section 80CCF. The investors will be eligible for a Rs.20,000 tax exemption under Section 80CCF in the year in which the money is put in bonds. While Section 80CCF is a sub-section of Section 80C, this Rs.20,000 exemption is for infrastructure bonds only and is in addition to the Rs.150,000 exemption limit provided by Section 80C. These bonds will be subject to a 5-year lock-in period, with a bond duration of up to 10 years. Again, the contribution is the only thing that is excluded. The interest component will remain taxed at your highest tax rate.
It’s like hitting two birds with one stone when it comes to infrastructure bonds. To begin with, infrastructure projects can raise financing for infrastructure at a significantly cheaper cost. At the same time, this provides HNI investors with tax-free income on a regular basis. Even for the taxpayer, this is a new way to save money on tax payments!
Is infrastructure bond income 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.