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.
IS return of infrastructure bonds are subjected to market Risk??
Hi.. Interest Rates on Infrastructure Bonds are fixed throughout their tenures but not guaranteed in case the issuer defaults on payments of either interest or the whole of your investment itself. But as these bonds are issued by quite reputed Infrastructure Finance Companies (IFCs), there remains very low probability of any default.
Also, these investments are like Fixed Deposits. As FDs are not subject to any Stock Market Risk, these bonds are also not related to any Stock Market Risk. But in case the issuer goes into some kind of bankruptcy, then you can lose your principal also.
as 80 CCF bonds are market linked,do they give any kind of assurance about the returns, because at time of maturity if market was not good we may not get back the money what we have invested. please inform regarding this
Hi ,
I am bit confuse about Infra bond . I missed the IDFC which was having AAA Rating . Now i have option to go for L&T Infra ( AA+) rating and IFCI ( only A rating) . Which bond i should go ? L&T is private but not sure how will that work after 10 year IFCI is govt agency but having very less rating (A only). Can you guide me which bond should i go.
Thanks
vikas kakkar
I have a question on Sec 80 CCF Infra Bonds –
Can the redemption proceeds of the bond held in cummulative form be eligible for LTCG? If yes, is it only for electronic form or for both physical and electronic forms.
Not capital gains but will be taxed like interest income is taxed both for physical and electronic. Remember, these are not tax free bonds – that’s a different thing – these give you tax benefit by reducing your taxable salary but the earning from these bonds is taxable.
Dear Manshu
Can u please clarify the following
For IDFC issued Long term infrastructure bond- the tax saving would be anywhere between 2000-6000. How do we arrive at the exact amount of saving done on investing Rs.20000, in this bond issue?
Dear Sonal – the way these bonds reduce your tax is by reducing your taxable income. So, if you invest Rs. 20,000 in these bonds – that 20K can be reduced from your taxable salary, and if you were in the 30% tax bracket – you will effectively save Rs. 6,000 tax.
So, how much tax you save depends on two things – what’s your slab and how much over your taxable income can you reduce with investment in these bonds.
Is that clear enough? I think you should be able to figure out how much you save based on this info now.
Thanks Manshu, This was of great help.
I wish to invest in Infrastructure bond online is it possible ??? ,, if yes from where ??
Yes, through your trading account like ICICI Direct or Edelweiss etc.
Dear Manshu,
First we are thankful to you giving response of all queries.
My question is that,
1. After 5 Years when we get the principal amount that will be taxable or not.
(You have already reply for this question on Jan’2011)
At present i got confused.
So pls help to give the reply.
Thanks
Pradeep Aggrawal
No, that will not be taxed because it is your money that you invested and are getting back after 5 years – only the interest is the money you earn and so only that is taxed.
Hi
Is there anyway to buy infra structure bonds on line using credit cards> If yes , what is the site and procedure?
Thanks and best regards
R.V.MURALIKRISHNAN
Not to my knowledge.
Should the redemption amount on maturity of the infrastructure bonds be added to the total income of the relevant year for the purpose of computation of tax?
No, if you took the interest option then you paid tax on interest every year and there is nothing on top of that you need to do during maturity.
If you took the cumulative option then you need to calculate capital gains on the bonds and then pay tax on capital gains, not add the whole maturity proceed to your taxable income.
Thanks.
will the redemption amount on maturity of the infrastructure bonds be added to the total income of that year for taxation purpose?
Dear Sir,
I have invested Rs.40000 in infrastructure bonds. Then how much amount will be considered for final tax exemption? is it possible that 20000 will be considered under 80C and remaining under 80ccf? Presently I am outside of country and can not invest under 80C in person. Will you please tell me is there any option that I can invest in PPF, NSC, postal savings etc through online? or any other 80C scheme?
Thanks
Amol
To the best of my knowledge, since they are diff sections you can’t use the extra 20K under 80C. This is my idea and I am no tax expert it’ll be good if you check this.
You can always buy 80C mutual funds online, so that’s one way I know that works for sure. If your trading platform allows NSC which I think ICICI Direct does, then that’s another option. Not too certain about anything else.
Hi Manshu,
Thanks for the information you are providing. I was considering to invest in the Infrastructure Bonds to save tax via 80 CCF. I ahd 2 queries:
1. Currently who provides best interest?(i.e. IDFC, LIC etc)
2. I have understood from your post that the interest each year will be taxed. If I use the buyback option and withdraw my amount invested i.e. 20,000/- will this amount be also shown as income and taxed in the 5th year?
Thanks in advance.
Hi Seemanth,
1. IDFC with 9% is the highest among those who have issued it so far.
2. No, that won’t be taxed. It’s your money that you take out after the fifth year, and not any sort of gain, so it won’t be taxed.
Hi Manshu,
Thanks for your prompt response. You have been answering all our queries very patiently. thanks…
Thanks Seemanth – I deeply appreciate the fact that you went to the trouble to leave a follow up comment. Thanks!
Manshu,
The bond tenure says 10 years whereas the lock in period is 5 years. What is the difference? If i dont use the buyback option on the 5th year, what will happen at the end of 10 th year? Will the money invested be deposited in the bank account?
Thanks.
If they don’t exercise the buyback option – they will continue to own the bond and pay you interest every year. At the end of 10 years, they will mature the bonds. In the bonds that have come up so far, this option is with the subscriber also, and unless interest rates come down dramatically in 5 years – I think it makes sense to exercise the option.
For IFCI Infra Bonds processing, please call me at 9241545354 (for bangalore only).
Hi Venkat,
Can you please let me know what is the commission for a Agent for selling of 20,000 infra bonds.
I mean is it 1% or 1/2%.
Hi,
I appreciate your efforts to help readers with their queries. Even though some of the queries are repetitive, you have still replies to the same again & again.
Thanks for your guidance and informative articles.
Regards,
Ajit Shah
Very nice of you to leave this comment – thank you so much!
Is it possible for me to transfer infrastructure bonds in my Demat account to my wife’s Demat Account.
I don’t know of a way Vipin – these bonds are locked and people who have tried to transfer them have had some problems. You can try seeing if they can be rematerialized and hold it in physical form to close the Demat account. I’m afraid I won’t be of much help but if you try calling their staff they might suggest a way.
Do we have any open Infrastructure bond now to invest 20K?
1.Will i get tax benefit if infrastructure bond taken in the name of my spouse.
2.Let me know the procedure for LIC-Superannuation in detailed.
3.LTA exemption can be claimed continuasly twice in two years or 2 years once.
1. No, not as far as I know.
2. Don’t know.
3. Read this: http://www.onemint.com/2011/01/24/can-a-holiday-package-be-claimed-fo-lta-exemption/?replytocom=123093
if i use demat a/c as investment then can i claim deduction as expenses of annual demat charges???
I don’t know about that Shashikant, sorry.
Dear Sir,My income from salary for the F.Y.2010-2011 is Rs.350000/-.My investment under section 80c is Rs.90000/-.I have traded share with my online trading a/c 5 or 6 times throughout the year and gaining Rs.2000/- only.Kindly inform me how to calculate my taxable income.
With regards,
Kausik Pramanik
You can use the calculator on this site to get an idea.
http://www.computeincometax.com/
I’m not a tax expert myself so can’t help you there.