Is it true that these infrastructure bonds are tax-free? No, the interest on these bonds is not tax deductible. The interest earned by the investor is subject to taxation.
Is an IFCI bond tax-exempt?
Industrial Finance Corporation of India (IFCI), a financial institution, announced its first ever batch of tax-free infrastructure bonds for retail investors today.
For investments up to Rs 20,000, the subscriber of these bonds will be eligible for a tax deduction under Section 80CCF of the Income Tax Act. This exemption is in addition to the existing investment exemption of Rs 1 lakh, according to IFCI.
Is infrabond 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.
Is the interest on IDFC infrastructure bonds tax deductible?
Koushis received a tax credit of Rs 2,000 (without cess) in AY 2011-12 since he was in the 10% tax bracket.
The interest was paid on a regular basis and just the capital invested was refunded at maturity under the non-cumulative option, whereas the cumulative option increased the value of each IDFC Bond from Rs 5,000 to Rs 10,800 at maturity.
As a result, the entire maturity value of his Rs 20,000 investment should be Rs 43,200, with a net gain of Rs 23,200. However, Koushis was taken aback when a tax of 7.5 percent, or Rs 1,740, was deducted at source (TDS) before the maturity value was transferred to his bank account.
Have you filed your ITR yet? Here are some of the ramifications of missing the March 31 deadline.
Koushis now wonders if he needs to pay 22.5 percent more (excluding cess) on the Rs 23,200 gain now that he is in the 30% tax band.
“In the hands of the investor, interest earned on Long-Term Infrastructure Bonds would be taxable under the heading ‘Income from Other Sources.'” “The interest on such bonds is not eligible for the deduction under section 80CCF of the Income Tax Act, 1961,” said Dr. Suresh Surana, founder of RSM India.
“It’s crucial to understand the distinction between tax-saving bonds and tax-free bonds in this context. Tax-free bonds are those in which the interest component is exempt from taxes or tax-free, whereas tax-saving bonds are those in which the principle component is deducted by the investor when calculating his taxable income. As a result, the interest on the Infrastructure bonds in question, which are tax-free bonds, would be taxed,” he explained.
On maturity, it will result in a total tax burden of Rs 6,960 (excluding cess), whereas he received a tax advantage of Rs 2,000 by investing in tax-saving long-term infrastructure bonds.
“There would be no direct tax advantage accruing to the investor on account of rising from a 10% to a 30% tax band over ten years,” Dr. Surana stated of the benefit.
However, under the non-cumulative option, Koushis’ tax burden would have been lower because the interest payments were consistent as he progressed from the 10% to the 30% tax rate.
He now regrets choosing the cumulative option due to the misunderstanding that tax-saving bonds and tax-free bonds are the same thing.
Not only Koushis, but the ambiguity surrounding tax-saving and tax-free bonds has surprised many taxpayers who have reaped tax benefits by investing in Long-Term Infrastructure Bonds issued by IDFC, REC, IIFCL, and others and have subsequently moved to a higher tax bracket over the 10-year investment period, as the tax payout on maturity value under the cumulative option exceeds the tax benefit reaped on the investment amount.
Is it true that all NHAI bonds are tax-free?
It should be emphasized that interest is not tax-free, and tax on interest must be paid according to the taxpayer’s income tax bracket. As a result, Capital Gains Tax is only applied to the amount invested. Income tax applies to the interest earned on these bonds.
What is income tax section 193?
The provisions relating to TDS on interest on securities are covered in Section 193. If a person pays a resident any income in the form of interest on securities, he or she must deduct tax under section 193. As a result, when paying interest on securities to a non-resident, the restrictions of section 193 do not apply. Payments paid to non-residents are likewise subject to the TDS process; however, tax must be deducted in accordance with section 195.
How are IFCI bonds dematerialized?
In the secondary market, we currently allow dematerialization of bonds and debentures.
You must submit a de-materialization request by filling out the form below, and the RTA must accept it. We’ll begin the dematerialization process once we receive RTA permission.
1. For each scrip/business, make three copies of the dematerialization request form (3 DRFs will suffice for up to four bond certificates from the same firm). If you have more than four certificates, you will need to submit an additional DRF). You must select the ‘Bond’ option from the ‘Type of security’ drop-down menu.
2. The Client ID should be mentioned in the ‘Signature with DP’ and ‘Signature with RTA/Issuer’ columns of the DRF (Dematerialization Request Form) (If It is a joint account then both the holders need to sign).
3. Along with the DRFs, the original bond certificates must be supplied. (A photocopy can be kept with you.)
4. A copy of your PAN that has been self-attested.
The RTA (Registrar And Share Transfer Agent) will take up to 25 days to finish the dematerialization process once you submit the following.
To begin the process of dematerializing your physical bond certificates, please submit a ticket using the form below.
What are the benefits of tax-free infrastructure bonds?
Tax-free bonds, as the name implies, are tax-free since they allow the government to produce interest income. These have a fixed rate of interest and the profits are usually put towards infrastructure projects.
Is the amount of bond maturity taxable?
The interest generated on tax-free bonds is not taxed, but the price appreciation of the bonds during their maturity (or sale) is treated as capital appreciation. As a result, capital gains taxes apply. Depending on the holding term, either the LTCG or the STCG will apply.
What is the best way to check my TDS in my ITR?
- You must first register on the IT department’s website, https://incometaxindiaefiling.gov.in/, in order to file your TDS electronically.
- You can file your income tax return after registering by downloading the appropriate ITR form.
- When you file an ITR, you will receive an acknowledgement for the ITR you submitted, which you must e-verify. You can use a digital signature, an aAadhaar-based OTP, or your net banking account for e-verification.
- If you were unable to e-verify the ITR, you can finish the verification process by providing a signed physical copy to the IT department.
What bonds are tax-free?
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.