I’ve fielded a lot of questions on the Section 80CCF Infrastructure bonds, and while I’ve written individual posts on the infrastructure bonds that have so far come out under this section, there is nothing on this section itself, so I’m going to address some common questions about Section 80CCF with this post.
It goes without saying that all these questions have popped up in the comments section at one time or the other (well, not the first one).
Is 80CCF a new Space Shuttle?
I wish it were, but it’s not even remotely as cool as that. In fact, it’s just a new section that allows Non Banking Financial Companies (NBFCs) to issue infrastructure bonds, and investors who invest money in these bonds can get an additional tax benefit.
What is the additional tax benefit under 80CCF?
All of you know that you can reduce your taxable income by investing in certain instruments like tax saving fixed deposits, or tax saving mutual funds, but the limit on the deduction from your taxable income is Rs. 100,000.
So, if you invest Rs. 150,000 in tax saving mutual funds – the tax benefit will be capped at Rs. 100,000.
Section 80CCF allows you to invest an additional Rs. 20,000 in infrastructure bonds, and have that reduced from your taxable income in addition to the Rs. 100,000 deduction you get from the other instruments.
Will I get the tax benefit every year, or just one year?
You will get the tax benefit only in the first year, which means that if you buy bonds worth Rs. 20,000 in this year – Rs. 20,000 will be deducted from your taxable income while calculating tax this year
There is no tax benefit from next year onwards.
I have a tax liability of Rs. 12,000 – will that become zero if I buy bonds worth Rs. 12,000?
No, that’s not how they work. Buying the bonds will not lead to a reduction in the tax paid by reducing that amount from your tax burden.
The benefit comes from reducing your taxable salary by the amount of your investment, so that the final tax burden is reduced.
Is there TDS on the interest?
For bonds that are issued only in electronic format there is no TDS, however that doesn’t mean that there is no tax on them.
Is the interest from these bonds tax free?
While there may be no TDS on the interest on these bonds, they are taxable, and the interest will be added to your income, and it will be taxable.
Do I need a Demat Account to invest in these infrastructure bonds?
Every bond issuer has different terms, and it depends on what their terms of issue are, but the IFCI issue is open only for Demat account holders, while the IDFC and L&T issues were available to people who wanted to subscribe via physical form as well.
Will these 80CCF bonds be listed on a stock exchange?
Yes, the bonds will be listed on a stock exchange, however they come with a lock in period, and you can’t sell them before the lock in period. For example, the IDFC bond had a lock in period of 5 years, so you can’t sell these bonds within 5 years, but once they list you will be able to sell them.
I missed the existing issues, will there be new infrastructure bond issues?
Yes, there are going to be more 80CCF infrastructure bond issues in the future, and if you missed the earlier ones, there is still a chance to get these bonds.
What tax proof will I get if I applied for the infrastructure bond in dematerialized form?
You will get allotment advice in the mail that you can use for tax proof, and if you haven’t received the proof then some people have been advised that they can use the copy of their Demat holdings to show that you own the bonds.
Can NRIs invest in Section 80CCF bonds?
The bonds that have been issued so far haven’t allowed investments from NRIs, and I think there might be some clause which limits NRIs from investing in these bonds.
Since I need a Demat account to buy these bonds, will I need a broker to exercise the buyback option?
You won’t need a stock broker to exercise the buyback option. In the case of IFCI you can write to them and ask them to exercise the buyback, and in the case of IDFC and L&T they can exercise it by buying it back from you and crediting your bank account, so you don’t need a broker.
You will need a broker if you decide to sell it on the exchange though.
When will I receive the physical allotment advice letter, and when will I start seeing them in my Demat account?
This is a question that has been tormenting a lot of people because the companies issuing these bonds don’t bother to communicate when the bonds will be allotted or when they will send the allotment advice letter.
No one can say for sure if the company doesn’t communicate this, but I’ve seen that the past couple of issues have taken about 3 – 4 weeks from closing of the issue to credit the bonds, and then an addition 2 or 3 weeks for the letter to arrive.
How are the yields for these bonds calculated?
This question is a bit more involved, and I have done full posts on how yields for tax saving bonds are calculated, as well as the limitations of the method used to calculate them and you can go through these posts to understand this better.
How can I keep track of these 80CCF infrastructure bond issues?
I have created this post with the calendar of 80CCF bond issues, and you can check that periodically to see if there are any new issues. This will also be widely reported in news articles, so it’s quite likely that you come across them in your daily reading.
Any other questions?
I’ve tried to cover all questions that I see pop up frequently, but if you have any other questions feel free to leave a comment, and I will try to answer them.
Any Infra bond Issues open currently?
REC is currently open, and IDFC will be on 17th Jan Anand.
Hi,
What is the process of demating the physical bond to the customers dp id
Via email by Govindaraju K
Hi,
You have to submit the Physical Bond to your DEPOSITORY PARTICIPANT furnishing your name and the DP ID. On receipt of the Bond they will take care for processing to credit your DEMAT Account.
I have a tax liability of Rs. 12,000 – will that become zero if I buy bonds worth Rs. 12,000?
No, that’s not how they work. Buying the bonds will not lead to a reduction in the tax paid by reducing that amount from your tax burden.
The benefit comes from reducing your taxable salary by the amount of your investment, so that the final tax burden is reduced.
sir i have to do savings for Rs 120000,out of which i have done for Rs100000, if i purchase these bonds for Rs 20000 then will it complete my saving ?
If I understand your question correctly Sameer – you have already done investments for Rs. 1 lakh, and now want to invest Rs. 20,000 more to get additional tax savings to max out all your tax saving avenues.
If that’s what you are asking then yes, investing 20,000 in these bonds will help you get over and above the 1 lakh limit.
Dear All,
I want the following clarification.
1)Whether the interest paid on 80 ccf Bonds are taxable. I mean to say that whether the interest income has to be added to the income every year at the time of filing return or TAX FREE.(I am not telling about TDS on Investment, as the total interest will not cross Rs.2500/- per year for the investment of Rs.20000/-
2)whether the proceeds of the Bonds, if redeemed after the lock in period are tax free or should it be treated as CAPITAL GAINS and to be added to Income on the financial year of Redemption.
1. Yes, interest is taxable.
2. Yes, they will be taxable as well.
Thanks Manshu for the Immediate response.
Govinda raju.K.
Hi, Can you please explain how the Capital gains tax is calculated for a cumulative bond with say 8% interest which is bought back at the end of 5 years as per the current tax laws.
Not sure about that Girish.
any infrasturucture bond available now
IFCI is open till 12th January.
How do I get certificate for the bonds I purchased thorugh ICICI direct online.
They will send an allotment advice, but it takes time, so if you’re asking how can you get one immediately I don’t know the answer to that.
Can a mutual fund advisor(AMFI Certified Agent) sell Infrastructure With their ARN number. Because they also known completely about the bonds & its risks, features in his past AMFI exam. Is that possible to tie ups with NBFC like AMC. I am rising this issue because now bonds are available physical formate. Please reply with your valuable solution.
Well, as far as I know the fund companies haven’t shown any interest in going the agent route so far. Most bond issues have had to extend their closing date, and extend from only Demat to physical form also, so that shows that there is a mismatch between perceived demand and ground reality so things might change in the future.
So, keep an eye out, and I guess you can always check with your existing client base to see if they need this type of service for a fee. All the best.
What are the newly released bonds in jan 2011 for 80ccf and when is the closing date ?
IFCI got extended till 12th Jan Sathosh, I’m not aware of anything else that’s open right now.
Since IFCI Infra bond was open till 31st Dec 2010 which already passed. Is there any Infra bond available now to invest with out using Demat Account. Please advise.
Can we use wife’s name Infra bond for own purpose as tax benefit if she is not using it?
IFCI has been extended till 12th Jan, so there is still time if you’re interested for that.
U have not replied abt Kailash’s 2nd query abt wife’s name
I have replied to the same question over and over again in several places. And in future if you have to ask a question yourself frame it in a more courteous manner than this or ask it somewhere else.
I have a deemat account in co-op bank & my wife doesn’t have deemat account at all, but of us have PAN and now want to go for IFCI tax saving infrastructure bonds, please tell me the procedure for the same,viz. Can be make it online/physically only? Reply promptly.
You can apply it in Demat form by giving in the Demat number when you apply for it, and your wife will necessarily have to apply in physical form. You will need to get to a bank branch or somewhere close to your home where they are accepting the forms – fill them up, and provide it to them with the necessary proof.
Dear sir, I want to make a investment in Infrasture bond under section 80CCF kinldy inform what is the lock in period.. whether i can withdraw the investment after 3 years.. and kinldy suggest me some of good infracture bonds, so that i can make the investment.
There hasn’t been anything that had a lock in for only 3 years, and I don’t think there will be anything in the future with that time frame either. Only IFCI is open right now, but a few others might come out early next year.
IFCI infrastructure bond is closing on december 31 2010. It is a very good opportunity to claim tax exemption on additional Rs 20,000. Infra bond is better option than SIP for 5 years.
Nisha,
I don’t understand why you’re leaving the same comment on every post stating that these bonds are better than SIPs.
They are two different things – if you’re affiliated with IFCI in anyway then please disclose it as a courtesy to other readers. Thanks!
if I’ve no demat acctt. what will the proocess of investing in infra-struct.bonds? can I jointly apply with my wife who has demat acctt.? can I avail tax benefits in this way?
You can invest in physical form also Naresh. IFCI, which is the issue currently open has allowed people to subscribe in physical form now, so you can avail that, or when a new issue comes you can apply in the physical form for that.
Can I purchase bond now to get Tax benefit for this running year.
yes, you can save tax if you invest in infrastructue bond which comes under 80ccf
thanks
anmol dheraj
9892573584
Is it possible buy now across counter? In my office I need to submit proof for 80 CCF by second week of January? If I subscribe now for IFCI it would be delayed to get allotment letter. Is there any other way? like NBFC or other way?
You can’t buy across the counter, but you can physical form now, so you can try that out, and see if the receipt they give will serve as a proof. You will need to check that with your company’s tax department first though.
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I have one more question in this regard. If I have to trade this bond in the share market after 5 years, how do I transfer my holdings to others (the physcial form of Bond). Also please explain the difference between buyback and selling stock exchange.
I don’t think it is possible to sell physical bonds on the stock exchange, so you will have to dematerialize them. However, you can exercise the buyback.
In case of buyback you sell the bonds to the issuer like IFCI on a pre determined price. In the case of selling it in the stock exchange it’s like selling it to someone else, and the price will be based on the interest rates at that time. If the interest rates move upwards then the price of these bonds will be lower and vice versa.
Good post Manshu. I missed using this instrument. On second thoughts, I feel I should have done some savings using this. Now that I have submitted the tax savings proofs etc for this year, I have to wait till next year to utilise this method. Though I am bit skeptic on the returns and also the lock-in period being a big negative, which was the reason I dint consider this in the first place.
Thanks Hema, this Section was introduced this year, and I’m not sure if the plan is to continue to have this next year also, or if it was just one off.