Tax Free Bonds, as name suggest these bonds offers tax free interest income. In other words, any interest earned from these bonds will be tax free in the hands of the investors. Tax free bonds are usually issued by government organizations in India to raise their capital. The interest rate on tax free bonds ranging between 8.5 to 8.75% depending upon the tenure. The interest rate offered by banks on there long fixed deposits ranges between 8 to 10% which will be taxable. So comparing returns of both tax free bonds and bank fixed deposits, tax free bonds comes out to be better in term of return on investment.
But considering the fact that the interest income earned from tax free bonds is tax free so the interest rate offered by the company will be effective rate of interest whereas in case of FD’s the effective rate of interest will be post tax return. In broader terms if an individual falls in the tax bracket of 30% post tax return for that individual will come out to be somewhere between 5.5 to 7%. So we can simply analyze the return on investment from tax free bonds will be higher than fixed deposits.
Features Of Tax Free Bonds
- Issued by govt. owned companies.
- Listed on NSE/ BSE.
- Tenure : 10 to 20 years
- Interest Rate : 8 to 8.75%
- Interest income is tax free
- Tradable in stock exchange
- Secured, Redeemable and Non-Convertible debentures
- Investment made under tax free bonds is not exempt from tax.
- Tax free bonds do not have any lock in period
- Capital Gain on sale of tax free bonds is taxable.
- Short Term Capital Gain : Taxable at normal rate
- Long Term Capital Gain : Taxable at 10% without indexation and 20% with indexation.
The financial year 2013 will come with Rs 53,300 worth of tax free bonds by 10 government companies in India. List of upcoming Tax Free Bonds:-
|Company||Issue Open Date||Issue Close Date||Face Value||Minimum Bid||Rating||Investment Period||Interest Rate|
|Dredging Corporation of India||ISSUE YET TO COME|
|Ennore Port||ISSUE YET TO COME|
|Housing and Urban Development Corporation (Hudco)||Jan 9, 2013||Jan 22, 2013||Rs 1000||5 Bonds||AA+||10 or 15 Years||7.84% to 8.01%|
|India Infrastructure Finance Co. Ltd. (IIFCL)||Dec 26, 2012||Jan 11, 2013||Rs 1000||5 bonds||AAA||10, 15 or 20 Years||7.19% for 10 years, 7.36% for 15 years & 7.40% for 20 years|
|Jawaharlal Nehru Port Trust||ISSUE YET TO COME|
|National Highways Authority of India (NHAI)||ISSUE YET TO COME|
|National Housing Bank (NHB)||ISSUE YET TO COME|
|Power Finance Corporation (PFC)||Dec 14, 2012||Dec 27, 2012||Rs 1000||5 Bonds||AAA||10 or 15 years||7.69% for 10 years, 7.86% for 15 years|
|Indian Railway Finance Corporation Ltd (IRFCL)||Jan 21, 2013||Jan 29, 2013||Rs 1000||5 Bonds||AAA||10 or 15 Years||7.68% for 10 years, 7.84% for 15 years|
|Rural Electrical Corporation (REC)||Dec 3, 2012||Dec 10, 2012||Rs 1000||5 Bonds||AAA||10 or 15 years||7.22% for 10 years, 7.88% for 15 years|
If you fall in the highest income bracket, means if you are having income exceeding Rs.10 lakhs in an year, then it is really worth investing in tax free bonds. As it is expected that investment in tax free bonds would give better returns than Bank Fixed Deposits in the year 2013 .
How To Invest In Tax Free Bonds 2013?
Online: If you have online share trading account with any one out of ICICI Direct, HDFC Securities, Reliance Money etc. then you can apply for the purchase of these bonds online using your share trading account.
Offline: You can visit the official website of the company and download the application form and submit the duly filled form along with cheque at collection center.