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.
my incometax savings is 64000/- out of which 20000/- is infrastructure Bond.is it valid for nfrastructure Bond which is saving below 100000/-.
Yes that is still valid.
i want to know if i sell these bonds after 5 years and have taken a cummulative option will ther be any tax and on how much tax will be payable?
Capital gains will be charged on that amount Aniket.
Dear Sir, I have done a mistake.I have invested Rs.91000/-(instead of Rs.9100000/-) under section 80c(LIC,PPF,PF). I have also invested Rs.20000/- in Infrastructure Bond.What will be the total deduction for my Income Tax F-Y 2010-11.
Okay that’s cool – so 91,000 under 80C and 20,000 under 80CCF. 1,11,000 in all.
Dear Sir, I have invested Rs.910000/- under section 80c(LIC,PPF,PF). I have also invested Rs.20000/- in Infrastructure Bond.What will be the total deduction for my Income Tax F-Y 2010-11.
1 lakh out of the 9.1 lacs you invested in 80C and 20K for infra bonds so 1.2 lacs in all.
Dear Sir,
In case a bond is purchased in the name of my father and the payment is done from his account only, can I claim the deduction of the such investment?
To the best of my knowledge this is not possible Ashish.
Sir,
Is LIC is going to issue INFRA Bonds or not. If not I can go for an alternative option.
Thanks & Regards,
Vara prasad AVGN
No, most probably they won’t be. The alternates are IDFC, REC and IFCI.
i have investment over 1.00 lacs.i am getting standard deduction of 1.60 lacs .after these deduction iam in tax group of rs 1 to 3.00 lacs.i have purchased infra structure bond of rs 20,000(l&t). how much amount i shall get exemption on income tax on this amount of rs 2000.00?
Dilip – the 20,000 from the infra bonds will also be deducted from your salary in order to calculate taxable income. So just like the way you reduced the 1 lac – you can reduce an additional 20k as well.
Whether bonds u/s 80CCF are EEE or EET or ETT or ETE?
Deepak – the money that you invest in them will be reduced from your taxable salary up to a cap of 20k, and there’s no other tax benefit outside of that.
Hi Manshu,
As the upper limit for investing is 20,000/- Can I do this amount in different bonds, what will be the best time of investing for the next financial year 2011-2012.
Thanks
Bairam
Yes, this can be done in diff bonds.
The only thing I’ll add to what Shiv has said, and this is something he has said in the past is that there isn’t going to be a lot of difference in terms of absolute interest you earn from two bonds since they are capped at an upper limit, and it makes sense to only invest up to 20K for tax saving purpose.
So, I wouldn’t wait too long to invest in the bonds so that I have the proofs and other documentation in time.
I have invested Rs.20000 in IFCI Infrastructue bond in physical format since I dont have DEMAT account. But, till to day I have not received the bonds. So, Let me know the procedure to get the information about it.
You can check the status of your bonds in this link http://www.beetalfinancial.com/bond.aspx
Check out the comments of this post and you will get a lot more info on this as there are many other people in the same situation.
http://www.onemint.com/2010/11/23/ifci-infrastructure-bonds-tax-saving-bonds-under-section-80-ccf/
hi, i was wondering that can these bonds be bought by a private limited company to save on capital gains from sale of property??
No Asis – there’s no provision for that.
is this deduction also available 2 persons having 70000 as a total of deduction under 80c or it shd be 100000 4 using this 20000 deduction ?
I have invested 70,000 in PPF, If i invest further 30,000 in IDFC,
will I get deduction upto 1,00,000 from taxable income.
Whether Infrastructure Bonds are in ETT catagory or EET or in EEE catagory. In other words as I understand the principle amount redeemed shall be required to be added to taxable income. Is it true?
No, that doesn’t make any sense because the primary benefit of investing in these bonds is that they allow you to reduce your taxable income, and thereby reduce tax.
If they were to add the value of the bond back to your income what good would that do?
How can we get the status of our IFCI infrastructure bond application?
Kailash – I’m not aware if there is anyway to do that right now.
i have missed the ifci infrasturcture bonds. kindly advice on the ones currently available and also for lic infrastructure bonds
Dr. Ravi Jindal,
REC & IDFC Tranche 2 are currently open. LIC has indicated that it might not come out with their bonds this financial year, so if you decide to wait for LIC you might miss them out altogether